EBA欧洲银行-Public-hearing-Large-Exposures-4-July-2013_16页_363kb

EBA Draft RTS on Overall Exposure to Clients in Respect of Transactions with Underlying Assets

Core Content

The European Banking Authority (EBA) has issued a Draft Regulatory Technical Standard (RTS) under the Capital Requirements Regulation (CRR) aimed at determining the overall exposure to clients resulting from transactions involving underlying assets. This document outlines the methodologies and conditions for calculating exposures, particularly in the context of Credit Investments Units (CIUs) and securitisation transactions. The objective is to ensure maximum harmonisation of regulatory standards across the EU while maintaining proportionality for different financial institutions.

The RTS is part of the single rulebook that enhances regulatory consistency and is developed through a structured process involving public consultation, stakeholder feedback, and impact assessments.

Main Objectives

• To define the conditions and methodologies for determining the overall exposure to a client or a group of connected clients from transactions with underlying assets.
• To specify the conditions under which the structure of transactions does not create an additional exposure.
• To ensure consistent application of exposure calculation rules across the EU banking sector.

Key Concepts

1. Overall Exposure Calculation

• The exposure value to a certain obligor must be identified separately for each exposure.
• The look-through approach is used to identify the obligors of all underlying credit risk exposures.
• If an institution cannot identify the obligors, the exposures are added to a hypothetical 'unknown client'.
• If an institution cannot distinguish between underlying assets, the total exposure is also added to the 'unknown client'.

2. CIUs (Credit Investments Units)

• When exposures rank pari passu (e.g., in a CIU), losses are distributed pro-rata based on the percentage of each investor's participation in the transaction.
• This proportional loss-sharing applies equally to all underlying assets, regardless of which one defaults first.
• The exposure value for each underlying asset is calculated based on the pro-rata share of the institution's investment.

3. Securitisation

• In securitisation, losses are distributed first to a specific tranche, and then pro-rata among investors in that tranche.
• The maximum loss for each tranche is limited by the lower of the exposure value of the underlying assets and the tranche value.
• The pro-rata ratio is applied to this lower value to determine the exposure assigned to each underlying asset.

Calculation Examples

Example 1: CIUs

• Institution's investment: 20
• Pro-rata ratio: 1/5
• Exposure assigned:
  • 5 to underlyings A and B (1/5 * 25)
  • 2 to underlyings C to F (1/5 * 10)
  • 1 to underlyings G and H (1/5 * 5)

Example 2: Securitisation (First Loss Tranche)

• Institution's investment: 20
• Pro-rata ratio: 1
• Exposure assigned:
  • 20 to underlyings A and B (1 * Min(25;20))
  • 10 to underlyings C to F (1 * 10)
  • 5 to underlyings G and H (1 * 5)

Example 3: Securitisation (Senior Tranche)

• Institution's investment: 20
• Other investors: 30 (rank pari passu)
• Pro-rata ratio: 2/5
• Exposure assigned:
  • 10 to underlyings A and B (2/5 * 25)
  • 4 to underlyings C to F (2/5 * 10)
  • 2 to underlyings G and H (2/5 * 5)

Example 4: Multiple Tranches

• Institution's investment in senior tranche: 10
• Other investors in senior tranche: 40
• Pro-rata ratio for senior tranche: 1/5
• Institution's investment in first loss piece: 10
• Pro-rata ratio for first loss piece: 1/2
• Exposure assigned:
  • 15 to underlyings A and B (1/5 * 25 + 1/2 * 25)
  • 7 to underlyings C to F (1/5 * 10 + 1/2 * 10)
  • 3.5 to underlyings G and H (1/5 * 5 + 1/2 * 5)

Additional Exposure Rules

• A transaction does not constitute an additional exposure only if losses on the transaction are solely attributable to events of default of the underlying assets.
• Otherwise, the transaction may lead to additional exposure, which must be accounted for in the overall exposure calculation.

Key Information

• The EBA is tasked with developing binding technical standards to support the CRR.
• The draft RTS is subject to public consultation, stakeholder feedback, and impact assessment.
• The final adoption of the RTS will be done by the EBA Board of Supervisors and submitted to the EU Commission for implementation.
• The large exposures limit applies to the hypothetical 'unknown client' if the obligors cannot be identified.

Next Steps

• 16 August 2013: End of public consultation.
• September–October 2013: Review of the draft RTS based on feedback.
• November–December 2013: Internal approval process by the EBA.
• December 2013: Delivery of the final draft RTS to the EU Commission for adoption and publication.