Question ID
2015_2283
Legal act
Directive 2014/59/EU (BRRD)
Topic
Resolution financing arrangements
Article
103
Paragraph
7
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Delegated Regulation (EU) 2015/63 - DR on ex ante contributions to resolution financing arrangements
Article/Paragraph
5(2)
Type of submitter
Competent authority
Subject matter
Application of the even deduction rule in case of intragroup transactions booked - by institutions which are parties to the contract - in different amounts
Question

How to apply the even deduction rule stipulated in the Article 5(2) of the Commission Delegated Regulation (EU) 2015/63 and further clarified by the EBA Q&A 2015_1893 (Treatment of specific liabilities - even deduction) in cases where each party books the transaction in different amount?

Background on the question

According to EBA Q&A 2015_1893 (Treatment of specific liabilities - even deduction), the requirement to 1cevenly deduct 1d certain liabilities means that the notional amount of each liability which meets the requirements of Article 5(1) of the DA shall be divided by the number of the institutions which are parties to the contract, on which the liability is based and the resulting amount shall be deducted from the liabilities which constitute the contribution base of each of those institutions.


It may happen, that the measurement - and related accounting treatment - of the transaction is different in each counterparty´s books (e.g. bond measured in amortized cost in the issuer´s statement of financial position "SOFP" versus the fair value measurement in the buyer´s SOFP).


In such case, two differing amounts resulting from the same transactions need to be treated in line with the requirement of the Delegated Act.


Example

Bank A has booked a liability of EUR 100 and an asset of EUR 40 both resulting from intragroup transactions eligible for deduction (for simplification there are only two parties to the contract). Then the Bank A reduces (evenly) its contribution base by EUR 50 (liability) and EUR 20 (asset), in total EUR 70, no matter how these transactions are booked by the counterparty.

Example Extension

If the Bank´s A liability of EUR 100 was a (issued) bond measured in amortized cost, bought by Bank B (e.g. parent) which measures the bond in the fair value of EUR 110, the Bank B reduces the contribution base by EUR 55.

Submission date
Final publishing date
Final answer

In case of mismatch between entity A and B, the value booked as a liability should prevail, because the exclusion under Article 5(1)(a) Delegated Regulation (EU) 2015/63 (DR on ex ante contributions to resolution financing arrangements) concerns intragroup liabilities.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.