Additional own funds requirements

(1) The supervisory authority orders that an institution, an institutional group, a financial holding group, or a mixed financial holding group must hold additional own funds beyond the requirements of Regulation (EU) No 575/2013, where it determines, in the course of the supervisory review and evaluation process under section 6b and the statutory instrument issued under section 10(1), that
1. risks or elements of risk are not covered, or are not sufficiently covered, by the own funds requirements under Parts Three, Four, and Seven of Regulation (EU) No 575/2013 and under Chapter 2 of Regulation (EU) 2017/2402, and under the statutory instrument under section 10(1),
2. risk-bearing capacity is not ensured, or the requirements for identifying and managing large exposures set out in Article 393 of Regulation (EU) No 575/2013 are not complied with, and it is unlikely that other supervisory measures are sufficient to ensure that these requirements can be met within a reasonable period,
3. the valuation adjustments made under Article 105 of Regulation (EU) No 575/2013 are unlikely to be sufficient to enable the trading book positions to be disposed of or hedged in the short term, under normal market conditions, without material loss,
4. the requirements for applying the approved internal approach are not met, and this is likely to result in inadequate own funds resources,
5. the institution, institutional group, financial holding group, or mixed financial holding group repeatedly fails to build up or maintain additional own funds of an adequate amount to comply with the own funds recommendation under section 6d, or
6. other institution-specific situations exist that give rise to material supervisory concerns. The additional own funds requirement under the first sentence may be ordered only for the purposes of covering the risks arising from the individual institution's business activities. This includes the effects of particular economic and market developments only where they are reflected in the institution's risk profile.
(2) Holding additional own funds on the basis of a determination under subsection (1), first sentence, point 1, may be ordered only where the amounts, types, and distribution of capital that the supervisory authority, having regard to the supervisory review of the procedures for identifying and ensuring risk-bearing capacity, considers adequate, exceed the own funds requirements set out in Parts Three, Four, and Seven of Regulation (EU) No 575/2013 and in Chapter 2 of Regulation (EU) 2017/2402. For this purpose, the supervisory authority also assesses, in particular,
1. the institution-specific risks or elements of risk that are expressly excluded from, or not covered by, the own funds requirements set out in Parts Three, Four, and Seven of Regulation (EU) No 575/2013 and in Chapter 2 of Regulation (EU) 2017/2402,
2. the institution-specific risks or elements of risk that are likely to be underestimated despite compliance with the requirements set out in Parts Three, Four, and Seven of Regulation (EU) No 575/2013 and in Chapter 2 of Regulation (EU) 2017/2402,
3. the material interest rate risks arising from banking book positions under subsection (3). For risks and elements of risk subject to the transitional arrangements or grandfathering clauses under Directive 2013/36/EU or Regulation (EU) No 575/2013, there is, as a rule, no underestimation of the risks or elements of risk. For the purposes of the first sentence, the capital considered adequate covers all risks or elements of risk identified as material under the second sentence that are not, or are not sufficiently, covered by the own funds requirements set out in Parts Three, Four, and Seven of Regulation (EU) No 575/2013 and in Chapter 2 of Regulation (EU) 2017/2402.
(2a) Where an institution, an institutional group, a financial holding group, or a mixed financial holding group is subject to the output floor own funds minimum,
1. the nominal amount of the additional own funds required by the supervisory authority under subsections (1) and (2) to address risks other than the risk of excessive leverage may not increase as a result, and
2. the supervisory authority reviews, without delay, but in any case no later than by the end date of the supervisory review and evaluation process, the additional own funds required under subsections (1) and (2), and removes parts of them where risks that are already fully covered, because the institution is subject to the output floor own funds minimum, would otherwise be counted twice. Once the supervisory authority has completed the review under point 2, point 1 no longer applies.
(2b) For as long as an institution, an institutional group, a financial holding group, or a mixed financial holding group is subject to the output floor own funds minimum, the supervisory authority, for the purposes of subsection (1), does not prescribe an additional own funds requirement where this would result in risks already fully covered by the institution being subject to the output floor own funds minimum being counted twice.
(3) Interest rate risks arising from banking book positions may in particular be deemed material where
1. an institution's economic value declines by more than 15 percent of its Tier 1 capital as a result of a sudden and unexpected change in interest rates, as it results from one of the six supervisory interest rate shock scenarios, or
2. an institution's net interest income declines sharply as a result of a sudden and unexpected change in interest rates, as it results from one of the two supervisory interest rate shock scenarios. Where the supervisory authority concludes, in the course of the review and evaluation process under section 6b, that the institution's management of the interest rate risk arising from banking book transactions is adequate, and that the institution is not excessively exposed to that interest rate risk, these risks are deemed not material.
(4) The amount of the additional own funds requirements ordered to cover the risk of excessive leverage that is not sufficiently covered by Article 92(1)(d) of Regulation (EU) No 575/2013 is determined by the difference between the capital considered adequate under subsection (2) and the own funds requirements set out in Parts Three and Seven of Regulation (EU) No 575/2013; subsection (2), second sentence, point 3, does not apply. In all other cases, the amount of the additional own funds requirement is determined by the difference between the capital considered adequate under subsection (2) and the own funds requirements set out in Parts Three and Four of Regulation (EU) No 575/2013 and in Chapter 2 of Regulation (EU) 2017/2402.
(5) The institution, institutional group, financial holding group, or mixed financial holding group must meet the additional own funds requirement to cover risks other than the risk of excessive leverage with Tier 1 capital to the extent of at least three-quarters. The Tier 1 capital under the first sentence must consist of Common Equity Tier 1 capital to the extent of at least three-quarters. The institution, institutional group, financial holding group, or mixed financial holding group must meet the additional own funds requirement to cover the risk of excessive leverage with Tier 1 capital. The supervisory authority may order the institution to meet the additional own funds requirement with a higher proportion of Tier 1 capital or Common Equity Tier 1 capital, insofar as this is necessary having regard to the institution's situation.
(6) The own funds used to meet the additional own funds requirement to cover the risk of excessive leverage that is not sufficiently covered by Article 92(1)(d) of Regulation (EU) No 575/2013 may not be used to meet any of the following requirements:
1. the own funds requirement set out in Article 92(1)(d) of Regulation (EU) No 575/2013,
2. the increased own funds requirements under section 10(3) to cover risks and elements of risk not covered by Article 1 of Regulation (EU) No 575/2013,
3. the increased own funds requirements under section 10(4),
4. the leverage ratio buffer requirement set out in Article 92(1a) of Regulation (EU) No 575/2013,
5. the own funds recommendation under section 6d, insofar as that recommendation relates to the risks of excessive leverage. The own funds used to meet the additional own funds requirement for other risks may not be used to meet any of the following requirements:
1. the own funds requirements set out in Article 92(1)(a), (b), and (c) of Regulation (EU) No 575/2013,
2. the increased own funds requirements to cover risks and elements of risk under section 10(3) not covered by Article 1 of Regulation (EU) No 575/2013,
3. the increased own funds requirements under section 10(4),
4. the capital buffer requirements under sections 10c to 10g,
5. the own funds recommendation under section 6d, insofar as that recommendation relates to risks other than the risk of excessive leverage.