EC Regulation Amends Standards for Calculating Credit Risk Adjustments
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.