2016 ex-ante contributions to the srf – additional guidance for the industry 30 november 2015...

2016 ex-ante contributions to the SRF – Additional guidance for the industry

30 November 2015

Definitions and guidance in the SRB 2016 Contributions Reporting Form reporting form prevail over the information in the slides

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Agenda

1 The Single Resolution Fund

2 Principals of ex-ante contributions

3 2016 Reporting data of ex-ante contributions

4 2016 Calculation of ex-ante contributions

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Objective of the Fund

The Single Resolution Fund

The Single Resolution Fund (‘The Fund’) is an essential element of the Single Resolution Mechanism (SRM) which harmonises resolution of credit institutions and certain investment firms within the 19 participating Member States.

The Fund will be built up during the first eight years (2016-2023) and shall reach at least 1% of covered deposits (approx. €55bn in 2024).

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Contributions to the Fund

The Single Resolution Fund

The Fund is financed from ex-ante contributions paid annually at individual (solo) level by all credit institutions and some investment firms established in the 19 Member States participating to the SRM.

The SRB is responsible for the calculation of the ex-ante contributions. The NRAs are responsible for the collection and transfer of contributions from the entities located in their respective territories to the Fund.

Where ex-ante contributions are insufficient to cover the losses or costs incurred by the use of the Fund, additional ex-post contributions should be collected.

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Harmonised rules for all the institutions contributing to the Fund

Principals of ex-ante contributions

The SRB is empowered to calculate the individual ex-ante contributions to the Fund annually due from credit institutions and some investment firms authorised in the 19 Member States participating to the SRM.

For the purpose of calculating these contributions, the Board applies the methodology set out in Delegated Regulation (EU) 2015/63 and Implementing Regulation 2015/81, which ensure harmonised calculation rules for all the institutions in scope.

The calculation of ex-ante contributions is based on the latest available reported data, in majority of cases: for contributions calculated in year N (e.g. 2016) the reference date is 31 December N-2 (e.g. 2014).

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and risk of all institutions under the SRF

Contributions to the Fund take into account the annual target level as well as the size and the risk profile of institutions.

Lump-sum treatment

Annual target level

Distribute the target among the institutions

Non-risky / small institutions Risky / large institutions

Total Liabilities

Own funds

Covered Deposits- - Derivative

adjustment-+ Intra-group liabilities- -

Calculation of base/size of institution:

Institution’s specific deductions

Risk factor adjustment

X

Base/size of institution

x

Total base/size and risk of all institutions under the SRF

Riskof institution


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Data necessary for calculation (summarized view)

1. Basic Annual Contribution: Total Liabilities (= Total Balance Sheet)

Annual financial statements─ Own Funds

EU COREP (Capital)─ Covered Deposits

DGSs / Institution ─ Accounting on-balance sheet derivative liabilities

Annual financial statements+ Derivative liabilities (leverage methodology) after floor Institution─ Deductions (if any)

Institution

2. Risk adjustment:i. Risk Exposure:

a) MRELNot reported in all MS for 2014

b) Leverage RatioEU COREP (Leverage)

c) Common Equity Tier 1 Capital (CET1) Ratio EU COREP (Capital)

d) Total Risk Exposure (TRE)EU COREP (RWAs)

e) Total Assets (TA)Annual financial statements

ii. NSFR & LCRNot reported in all MS for 2014

iii. Interbank loans and deposits Not reported in all MS for 2014

iv. a) Risk exposure on traded debt and equity (out of TRE, CET1, TA) EU COREP (manual if IRB)

Off-balance sheet nominal (out of TRE, CET1, TA) EU COREP (Leverage)Derivative exposure (out of TRE, CET1, TA)

EU COREP (Leverage) Of which: CCP exposure (risk reducing)Institution

Complexity of business model (Y/N)Not reported in all MS for 2014

b) IPS membership and authorisation (Y/N) Institution

c) Extent of previous extraordinary public financial support (Y/N) Institution

Source


Small (non-risky) institutions

Medium and large institution

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Timeline for 2016 contributions

2015 2016

Nov Dec Jan Feb

OngoingInstitutions are

being requested data

MarOct Apr May Jun

1 February 24:00Deadline for

institutions to submit data

1 MayInstitutions are

notified of annual contribution amounts

Jul

30 JuneDeadline for

institutions to pay annual contribution

amounts

National Resolution Authorities are:

First contact point for institutions in case of any questions or need of clarification Collecting the data and contributions for the SRF

Single Resolution Board is:

Applying harmonised rules Giving guidance for data collection and calculations to the NRAs


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What happens if (some) data are not submitted by 1 February 2016

Where an institution does not submit the data by 1 February 2016:

the Board will use estimates or its own assumptions in order to calculate the annual contribution of the institution.

the Board may assign the institution concerned to the highest risk adjusting multiplier, i.e. 1.5

Institutions shall submit all the data required by the National Resolution Authorities by 1 February 2016 24:00 at the latest.


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Reporting data of ex-ante contributions

The following slides complement the definitions and guidance included in the reporting form (especially in tab 5) developed for 2016 ex-ante contributions to the Single Resolution Fund, by providing:

• Key messages by main building blocks of the reporting form;

• Illustrations, especially for the derivative adjustment and deductions;

• Additional guidance on specific topics.

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IdentificationBase

Derivatives

Deductions

Promotional loans

CCPs & CSDs

IPS & Intragroup

Investment firms

Risk Adjustment

Covered deposits

Total Liabilities

Own Funds

Tab 1 Tab 2 Tab 3 Tab 4


• Identifies the institution and its characteristics

• Collects data for the basic annual contribution

• Determines if the institution qualifies for a simplified calculation method

• Collects data to adjust derivatives (except credit derivatives), when applicable

• Collects data for the deduction of qualifying items from the basic annual contribution, where applicable

• Collects data regarding the risk profile of the institution in order to apply the risk adjustment

Small (non-risky) institutions Medium and large institution

Risk Exposure

Overview of the building blocks of the reporting form for 2016 contributions

Additional indicators

Field filled in by the institution Field automatically generated in the reporting form

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The reporting form allows to identify if the small institution qualifies for the lump sum approach so that it does not have to fill in the derivative adjustment, deductions and risk adjustment data.

It also provides guidance for each data to be reported (tab 5), for deductions (tab 3) and for institutions with individual waiver for own funds and leverage ratio (tab 4).

It automatically consolidates in the tab 6 all the data reported by the institution with:

• Automatic completeness checks;

• Automatic consistency checks.

Tab 6. Validation rules

Tab 5. Definitions and guidance

Functionalities integrated in the reporting form for 2016 contributions

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Before filling in the reporting form, all institutions shall read the general instructions listed in the Section B of the ‘Read me’ tab.

This tab also contains information regarding:

• The submission deadline for the reporting form;

• Next steps for the institution;

• The scope of application of 2016 ex-ante contributions to the SRF;

• Legal references.

‘Read me’ tab of the reporting form for 2016 contributions

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Field ID Field (rephrased here below)

If the institution is a credit institution

If the institution is a central body

If the institution is a member of a qualifying ‘Institutional Protection Scheme’ (IPS)

If the institution is a central counterparty (CCP)

If the institution is a central securities depository (CSD)

If the institution is an investment firm

If the institution is an investment firm authorized to carry out only limited services and activities

If the institution operates promotional loans

If the institution is a mortgage credit institution financed by covered bonds

If the institution has merged with another institution after 2014

Reference date for the data reported: Date of the latest approved annual financial statements available before 31 December 2015 (mainly 31 December 2014)

Tab 1 identifies characteristics for potential deductions and specific treatments

Impact

Potential deduction of covered deposits

All the data to be reported on a consolidated basis

Potential deduction of qualifying IPS liabilities

Potential deduction of qualifying clearing liabilities

Potential deduction of qualifying CSD liabilities

Potential deduction of qualifying liabilities that arise by virtue of holding client assets or client money

It qualifies for a specific simplified approach

Potential deduction of qualifying liabilities related to promotional loans

It can qualify for a simplified calculation method

Two reporting forms for the post-merger institution

1C1

1C2

1C3-4

1C5

1C6

1C7

1C8

1C9

1C10

1D2

1E1

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Total Liabilities

Own funds

Covered Deposits- -


Total liabilities = total balance sheet (sum of liabilities and equity items) at the reference date and as reported in the annual financial statements of the institution.

Own Funds = sum of Tier 1 and Tier 2 capital (EU COREP, Annex I, Template n.1, code c 01.00, row 010)

Covered Deposits (This field only applies to credit institutions) = As defined in the Deposit Guarantee Scheme Directive 2014/49/EU Guidance to be provided by each NRA

Covered deposits (2014) Basic Annual Contribution

Annual Target level Covered deposits

(2015)

(Section A) collects data for the basic annual contribution.

2A1

2A2

2A3-2A6

No additional data is required if the institution qualifies for a simplified method!!!!!! (Section B.i and B.ii)

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Identification of the "liabilities arising from derivatives" -excluding credit derivatives- in the total liabilities reported in the annual financial statements

Application of the leverage ratio methodology (netting recognised in step 2 can be applied) to derivatives with negative replacement costs or market values. (*)

Identification of the recognised netting agreements (except cross-product netting) under the CRR 575/2013

Application of the floor; calculation of the floor amount (75% of accounting measure -fair value- for derivative liabilities held on- and off-balance sheet; accounting netting can be applied); the floor amount replaces the amount calculated in step 3 if it is higher.

75% FLOOR

Accounting value

1

2

3

4

Adjustment of total liabilities: Total Liabilities - Reported on-balance sheet derivatives (step 1) + Derivatives under leverage methodology after floor (steps 2 to 4)

L

Financial Statements (BS)

A

5

Derivative adjustment intends to ensure a harmonised treatment of derivatives in the determination of the basic annual contribution allowing for the comparability of their valuation between institutions and for a level playing field across the Union.

In order to adjust derivative liabilities in total liabilities, the following 5 steps should be performed

Credit derivative contracts are not adjusted.

(Section C) adjusts derivative liabilities.

2C2

2C1

2C3

2C4

2C5

2C6

(*) DATA FREQUENCY: According to the DR, the leverage ratio methodology should be applied as "the yearly average amount, calculated on a quarterly basis". If this same value is only available for one or some quarters of the reference year, the yearly average of these quarters must be reported.

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Total Liabilities in annual financial statements

Absolute amount of fair values (including accrued interests) of derivative liabilities booked on-balance sheet under accounting standards in annual financial statements

• Netting under accounting rules can be applied

Absolute amount of fair values (including accrued interests) of derivative liabilities held off-balance sheet under accounting standards

• Netting under accounting rules can be applied

Leverage value of derivatives with negative current replacement costs:

• Absolute amount of current replacement costs + Notional*% (CRR Art. 274) OR Notional*% (CRR Art. 275 if already applied for CRR Art. 92)

• Netting under Leverage rules (CRR Art. 295) can be applied, except cross-product netting

Floor amount

Leverage value of derivatives after floor

Total Liabilities after derivative adjustment

Legal ref.

Example A: All derivatives are

booked on-balance sheet

Example B: Some derivatives are booked on-balance sheet, others are held off-balance sheet

Assets

100

Liabilities

Negative fair values of derivatives held off-balance sheet = -11 Absolute amount = 11

Derivative fair values = 22

100

0 (zero)

89

Field ID

100

2A1

Derivative fair values = 11

8989

22 + (Sum of Notional*% for all derivatives with negative current replacement cost) = 80 (CRR Art. 274)

OR

Sum of Notional*% for all derivatives with negative current replacement cost = 80 (CRR Art. 275)

100 – 22 + 80 = 158 89 – 11 + 80 = 158

Automatic calculations in the reporting form:

DR 2015/63 - Art. 3(22)

DR 2015/63 -

Art. 3(22), 5(3)

DR 2015/63 - Art. 3(22),

5(3)

DR 2015/63 - Art. 3(22),

5(3);CRR

575/2013 – Art. 274, 275, 295;

DR 2015/62 – Art. 429a

DR 2015/63 - Art. 3(22), 5(3), 5(4)

75% * 22 = 16.5

Max ( 80 ; 16.5) = 80

2C2

2C3

2C1

2C5

2C6

Data needed from the institution:

Assets Liabilities

(Section C) – Derivative adjustment - Illustrations

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Tab 3 provides guidance to report possible deductions from the total liabilities after derivative adjustment.

Section Deduction category

A Qualifying liabilities related to clearing activities

B Qualifying liabilities related to CSD activities

C Qualifying liabilities that arise by virtue of holding client assets or client money

D Qualifying liabilities that arise from promotional loans

E Qualifying IPS liabilities (and assets)

F Qualifying intragroup liabilities (and assets)

Conditions

Only for CCPs and if conditions in Art. 5(1)(c) are met

Only for CSDs and if conditions in Art. 5(1)(d) are met

Only for investment firms and if conditions in Art. 5(1)(e) are met

Only for institutions operating promotional loans and if conditions in Art. 5(1)(f) are met

Only for qualifying IPS members and if conditions in Art. 5(1)(b) & 5(2) are met

Only for qualifying group entities and if conditions in Art. 5(1)(a) & 5(2) are met

The Delegated Regulation 2015/63 allows deductions under strict conditions.

A single transaction can only be deducted ONCE from the total liabilities after derivatives adjustment, even if it matches several of the deduction categories below.

The deduction of qualifying derivative liabilities in Tab 3 should take into account the adjustment made to all the derivative liabilities in Tab 2 (Section C).

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Intragroup non-derivative liabilities with B (accounting value) = 30

Intragroup non-derivative assets with B (accounting value) = 25

Group entity B

Intragroup non-derivative liabilities with A (accounting value) = 25

Assets Liabilities Assets Liabilities

Group entity A

Data needed from the group entity A for its intragroup non-derivative deductions:

. Intragroup liabilities that meet all the conditions in Article 5(1)(a) of the DR:

Total accounting value

. Intragroup assets that meet all the conditions in Article 5(1)(a) of the DR:

Total accounting value booked by group entity A

Adjusted value taking into account the values and derivative adjustment made by group entity B

Automatic calculation in the reporting form:

. Deductible amount of assets and liabilities arising from qualifying intragroup liabilities for A

Legal ref. Field IDValues in this example

30

2525

30/2 + 25/2 = 27.5

3F5

3F9

3F10

3F11

DR 2015/63 - 5(1)(a), 5(2)

Intragroup non-derivative assets with A (accounting value) = 30

(Section F) – Deduction of non-derivative intragroup liabilities – Illustration*

The intragroup transactions below between group entities A and B meet all the conditions in Article 5(1)(a) of the DR 2015/63. In the example below, there is a perfect match between the accounting value of intragroup transactions booked by A and B in their respective financial statements. In case of mismatch, the liability value prevails over the asset value.

Total Intragroup liabilities = 25↪ Total deductible intragroup liabilities

for group entity A = 25/2 = 12.5↪ Total deductible intragroup assets for

group entity B = 25/2 = 12.5


for group entity A = 30/2 = 15↪ Total deductible intragroup assets for

group entity B = 30/2 = 15

Deductible amounts for A & B come from their respective qualifying liabilities. An even deduction is applied (50%

of qualifying liabilities for A, same for B)

* The same methodology applies for transactions between IPS members (Art. 5(1)(b))

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Intragroup derivative assets with B

(accounting value) = 22

Group entity B

Intragroup derivative liabilities with A


Assets Liabilities Assets Liabilities

Group entity A

The intragroup transactions below between group entities A and B meet all the conditions in Article 5(1)(a) of the DR 2015/63. In the example below, all the intragroup transactions between A and B are derivatives.


for group entity A = 80/2 = 40↪ Total deductible intragroup assets

for group entity B = 80/2 = 40


for group entity A = 30/2 = 15↪ Total deductible intragroup assets

for group entity B = 30/2 = 15

Deductible amounts for A & B come from their respective qualifying liabilities taking

into account the derivative adjustment.

An even deduction is applied (50% of qualifying liabilities for A, same for B)

* The same methodology applies for transactions between IPS members (Art. 5(1)(b))

Intragroup derivative liabilities with A

(leverage value) = 80

Intragroup derivative liabilities with B


Intragroup derivative liabilities with B

(leverage value) = 30

Data needed from the group entity A for its intragroup derivative deductions:

. Intragroup liabilities that meet all the conditions in Article 5(1)(a) of the DR:


Of which: arising from derivatives: accounting value

Arising from derivatives: leverage value

. Intragroup assets that meet all the conditions in Article 5(1)(a) of the DR:

Total accounting value booked by group entity A

Adjusted value taking into account the values and derivative adjustment made by group entity B


. Deductible amount of assets and liabilities arising from qualifying intragroup liabilities for A


10

1030

22

80

80/2 + 30/2 = 55

3F5

3F6

3F1

3F9

3F10

3F11

DR 2015/63 - Art. 3(22), 5(1)(a),

5(2)

CRR 575/2013 – Art. 274, 275,

295

DR 2015/62 – Art. 429a

(Section F) – Deduction of derivative intragroup liabilities – Illustration*

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Total Assets = 100

Assets Liabilities

Entity

Data needed from the entity for CSD deductions:

Qualifying liabilities related to CSD activities that meet all the conditions in Article 5(1)(d) of the DR:


Of which: arising from derivatives: accounting value

Arising from derivatives related to CDS activities: leverage value


. Deductible amount of qualifying liabilities related to CSD activities


25

--

--

25

3B5

3B6

3B1

3B8

(Accounting values)

Qualifying liabilities related to custody (non-derivatives)=

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(Section B) – Deduction of CSD liabilities (non-derivatives) – Illustration The CSD liabilities below meet all the conditions in Article 5(1)(d) of the DR 2015/63

DR 2015/63 - Art. 3(23), 5(1)(d)

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Risk Pillar Risk Indicators

I Risk Exposure

MREL

Leverage Ratio

Common Equity Tier 1 Capital Ratio

Total Risk Exposure divided by Total Assets

II Stability and variety of sources of funding

Net Stable Funding Ratio;

LCR

IIIImportance of an institution to the stability of the financial system or economy;

Share of interbank loans and deposits in the European Union

IV Additional risk indicators determined by the SRB

Trading activities, off-balance sheet exposures, derivatives, complexity and resolvability;

Membership in an Institutional Protection Scheme

Extent of previous extraordinary public financial support

Each year the applicability of the risk indicators is subject to analysis by the SRB.

Tab 4 Collects data regarding the risk profile in order to apply the risk adjustment

Risk Pillars and Indicators for 2016 ex-ante contributions:

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Has the competent authority granted a waiver to the institution from the application of CRR requirements on an individual basis?*

No

Yes, for the leverage ratio

Yes, for own funds requirements

* This waiver shall be granted by the competent authority in circumstances defined in Regulation (EU) No 575/2013 (CRR).

Consequences

• Information in tab 4 to be reported at individual legal entity level

• Less fields to be filled in tab 4 See Appendix

• Leverage ratio risk indicator (4A7 field in section A.ii) to be reported at the lowest EU sub-consolidated level. If the latter does not apply, at EU consolidated level.

• Risk indicators in sections A.iii, A.iv and D.i to be reported at the lowest EU sub-consolidated level. If the latter does not apply, at EU consolidated level

• Always the same reporting level (EU sub-consolidated or consolidated) must be applied in sections A.iii, A.iv and D.i

Tab 4 Collects data regarding the risk profile in order to apply the risk adjustmentArticle 8.3 of the DR 2015/63 foresees the situation where a waiver was granted to the institution under the CRR rules.

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and risk of all institutions under the SRF

Contributions to the Fund take into account the annual target level as well as the size and the risk profile of institutions.

Lump-sum treatment

Annual target level

Distribute the target among the institutions

Non-risky / small institutions Risky / large institutions

Total Liabilities

Own funds

Covered Deposits- - Derivative

adjustment-+ Intra-group liabilities- -


Institution’s specific deductions


X

Base/size of institution

x

Total base/size and risk of all institutions under the SRF

Riskof institution


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Lump-sum reflects the fact that, in many cases, small institutions are less risky than larger institutions.

Calculation of ex-ante contributions

Small institutions pay lump sum amount, when: Total Assets < €1bn; and Base/size of an institution (i.e. ) ≤ €300m *

If the institution provides sufficient evidence that the lump sum amount is higher than the contribution calculated with the full risk adjustment methodology, the lower will be applied.

Base/size of institution Lump sum amount (annual)

base/size ≤ €50m 1.000 €

€50m < base/size ≤ €100m 2.000 €

€100m < base/size ≤ €150m 7.000 €

€150m < base/size ≤ €200m 15.000 €

€200m < base/size ≤ €250m 26.000 €

€250m < base/size ≤ €300m 50.000 €

Total Liabilities

Own funds

Covered Deposits- -

* Partial lump sum also foreseen in Article 8.5 of Implementing Regulation 2015/81.

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Collect risk indicatorsDistribute risk indicators

into bins (discretisation)Rescale risk indicators

Apply the sign to risk indicators

Generate the Final Composite Indicator (FCI)

Rescale the FCI and compute contributions

1 2 3

4 5 6


Calculation of ex-ante contributions

Appendix

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Individual waiver for Leverage ratio granted?

Reporting level of the Leverage ratio

Leverage ratio (0.0000)

Individual waiver for Own funds granted?

Reporting level of the Common Equity Tier 1 capital ratio

Common Equity Tier 1 capital

Total Risk Exposure (or Total Risk Weighted Assets)

Total Assets

Risk exposure amount for market risk on traded debt instruments and equity

Total off-balance sheet nominal amount

Total derivative exposure

Of which: derivatives cleared through a CCP

Name of the IPS (when applicable)

Extent of previous extraordinary public financial support

Value to report by the institution

‘No’

‘Individual’

Leverage ratio at individual level (COREP C45.00)*

‘No’

‘Individual’

CET 1 capital at individual level (COREP C01.00)*

TRE at individual level (COREP C02.00)*

Same as Total Liabilities (2A1 field in Tab 2)

At individual level (COREP C02.00*, manual for IRB banks)

At individual level (COREP C40.00)*

At individual level (COREP C45.00)*

At individual level (risk reducing data)

If not applicable, ‘.p’

See next slide

4A1

4A2

4A7

4A8

4A9

4A14

4A15

4A17

4D1

4D5

Tab 4 Collects data regarding the risk profile in order to apply the risk adjustmentData to report by an institution that was not granted a waiver for the application of own funds and/or leverage ratio requirements on an individual basis:

4D9

4D10

4D14

4D17-4D19

* See Tab 5 of the reporting form for the exact row and column in COREP reporting

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Does the institution meet the following three conditions at the reference date (mainly 31 December 2014):

a) The institution is part of a group that has been put under restructuring after receiving any State or equivalent funds such as from a resolution financing arrangement;

b) The institution is part of a group that is still within the restructuring or winding down or liquidation period;

c) The institution is part of a group that is not in the last 2 years of implementation of the restructuring plan.

Name of the EU parent

RIAD MFI code of the EU parent

4D17

Tab 4 Collects data regarding the risk profile in order to apply the risk adjustment‘Extent of previous extraordinary public financial support’ risk indicator

4D18

4D19

Whether the answer to the field 4D17 is ‘Yes’ or ‘No’, the two following fields must be filled in.

Thank you!

2016 ex-ante contributions to the srf – additional guidance for the industry 30 november 2015...

Documents

ante contributions n2objective

transfer of contributions

risk profile of institutions

harmonised calculation

calculation summarized

participating member

certain investment firms

n6and risk