Question ID
2016_3043
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Supervisory reporting - Leverage ratio
Article
430
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
Article/Paragraph
ANNEX XI / Paragraph 20
Type of submitter
Credit institution
Subject matter
Template C 47.00, rows 270 and 280 (Validation rule v4452_s) – treatment of Cash Flow Hedge reserves
Question
  1. The validation rule v4452_s requires that the rows 270 and 280 of the template C 47.00 are always non-positive. This appears to be incorrect. In case of prudential filters increasing the Tier 1 capital, the amounts reported on these rows can be positive as well. Can you please confirm and amend the rule?
  2. Should the leverage exposure be adjusted for the complete cash flow hedging reserve or should the reserve be split to parts relating to assets/liabilities and only the part relating to assets be adjusted for (even though the full reserve is filtered from capital)?
Background on the question

An institution has to filter out the fair value reserves related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value (Article 33.1.a CRR) from its Tier 1 capital. The ITS on Supervisory Reporting  (as amended by Regulation (EU) 2016/428), Annex XI, instructions for rows 270 and 280 of template C 47.00 specifically refer to Article 33 CRR.

  1. In case the reserve relates to a loss, the prudential filter increases the Tier 1 capital. If this loss is sufficiently large to offset any negative Tier 1 items (deductions), the resulting Tier 1 and Leverage exposure impact is positive (the aggregate of filters and deductions).
  2. This filtering should be taken into account in the calculation of the Leverage Exposure amount. However, the filtering applies to gains/losses financial instruments, which can also be liabilities of the institution. Considering this, should the complete fair value reserves related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value be considered an adjustment to the Leverage Exposure amount, even though it partially relates to fair value gains/losses related to liabilities. Or should the reserve be split to the part related to assets/liabilities and only the part related to assets adjusted?
Submission date
Final publishing date
Final answer

According to point a) of Article 429 (4) of Regulation (EU) No 575/2013 (CRR) as amended by Regulation (EU) 2015/62, the exposure value of assets has to be adjusted for amounts which have been deducted when determining the capital measure of the leverage ratio. The provision thus does not cover amounts which may have increased the capital measure. Furthermore, the rule aims at the asset side of the balance sheet only. Hence, any adjustments not targeting the value of an asset but, for instance, being related to liabilities shall not decrease the leverage ratio exposure value of assets with regard to the introductory mentioned paragraph of the CRR (question 2).

The instructions for the cells {C47.00;r270;c010} and {C47.00;r280;c010}, which the first question refers to, reflect the wording and the scheme of point a) of Article 429 (4) CRR: ‘As these amounts are already deducted from the capital measure, they reduce the leverage ratio exposure and shall be reported as a negative figure.’ (see Annex XI to Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) as amended by Implementing Regulation (EU) 2016/428). Against this background, validation rule v4452_s, which is based on paragraph 9 of Annex XI, is correct (question 1).

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

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