26 July 2013

EBA publishes first final draft technical standards on own funds and credit risk adjustment

The final draft RTS and final draft ITS on own funds, as well as its final draft RTS on credit risk adjustment (CRA) will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in Europe, and specifically at strengthening the quality of capital.

RTS and ITS on own funds

These draft final RTS and ITS cover different areas of own funds. In particular, the RTS on own funds part I specify the different elements of own funds, including: Common Equity Tier 1 (CET1) capital, Additional Tier 1 capital, Tier 2 capital, deductions from the different types of capital, and transitional provisions for own funds in terms of grandfathering. The RTS on Gain on Sale specify further the concept and the treatment of a gain on sale, defined as any increase (or part of an increase) in equity under the applicable accounting framework arising from future margin income in the context of a securitisation transaction. The RTS on own funds part II specify the conditions under which competent authorities may determine that a type of undertaking recognised under applicable national law qualifies as a mutual, cooperative society, savings institution or similar institution for the purpose of calculating own funds. Finally, the ITS on disclosure for own funds focus on disclosure requirements and aim at increasing transparency on regulatory capital held by European institutions.

RTS on credit risk adjustment

These draft final RTS specify the calculation of specific and general credit risk adjustments to determine own funds requirements for credit risk. For this reason, the required calculation is limited to the amounts of credit risk adjustments that both reflect losses exclusively related to credit risk and reduce the institution's Core Equity Tier 1 (CET1) capital. In particular, these RTS foresee that any relevant credit risk adjustment must be calculated either under General Credit Risk Adjustments or Specific Credit Risk Adjustments. Relevant criteria for this calculation are also provided and, in order to facilitate the work of institutions in applying them, the RTS elaborate further on some specific cases.

Press release

RTS – own funds

ITS – own funds

RTS – CRA

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