The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union—that is, July 11, 2022.
The Regulation 2022/954 amends Regulation 183/2014 with respect to calculating the specific credit risk adjustments for purposes of assigning the risk-weights, referred to in Article 127(1) of the Capital Requirements Regulation or CRR (575/2013), to the unsecured part of a defaulted exposure. When calculating specific credit risk adjustments for such purposes, institutions shall include any positive difference between the amount owed by the obligor on that exposure and the sum of the following:
- Additional own funds reduction if that exposure was written-off fully
- Any already existing own funds reductions related to that exposure
The Regulation 2022/954 highlights that it is necessary to ensure that the specific credit risk adjustments recognized for the purposes of Article 127(1) of CRR incorporate any discount in a transaction price of a defaulted exposure that the purchasing institution has not recognized by increasing common equity tier (CET 1) capital. In case of a revaluation of the defaulted exposure occurring after its purchase, the discount should no longer incorporate the part of the revaluation amount of the defaulted exposure that has been recognized as increasing the institution’s CET 1 capital. This needs to be done to avoid any undue double recognition of the potential decrease in the level of expected loss by the purchasing institution after the purchase on both CET 1 capital of that institution and for the purposes of determining the risk-weight in accordance with Article 127(1) of CRR. Therefore, Regulation 183/2014 has been amended accordingly.
Related Link: Regulation 2022/954
Keywords: Europe, EU, Banking, Credit Risk, CRR, Basel, Regulatory Technical Standards, Regulatory Capital, Risk-Weighted Assets, Defaulted Exposures, EC
Previous ArticleACPR Publishes Notice on O-SIIs and Draft Version of RUBA Taxonomy
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.