Article 150 of Regulation (EU) No 575/2013 (CRR) provides the requirement to include a certain exposure class in the PPU perimeter, by assessing the relative materiality (generally only exposures deemed as immaterial can be included in the PPU perimeter). It appears that the evaluation is aimed to assess the respect of the threshold for an institution that currently uses the IRB and intends to require the permission to use the standardised (SA) approach.

Regarding the equity exposure class, Article 150(2) CRR states that "the equity exposure class of an institution shall be material if their aggregate value, excluding equity exposures incurred under legislative programmes as referred to in point (h) of paragraph 1, does not exceed on average over the preceding year 10 % of the own funds of the institution. Where the number of those equity exposures is less than 10 individual holdings, that threshold shall be 5 % of the own funds of the institution."

However in point (1)(g) of Article 150 it is stated that  "equity exposures to entities whose credit obligations are assigned a 0 % risk weight under Chapter 2 including those publicly sponsored entities where a 0 % risk weight can be applied" can be included in the PPU perimeter, without any other requirement to be fulfilled.

In other words, Article 150(2) provides indications whether an equity exposure class of an institution shall be considered material, in the context of Article 150(1), introduced within subparagraph 150(1)(c), but  it does not specify whether exposures, for which PPU has already been granted pursuant to criteria different from the materiality one as per Article 150(1)(c) can be excluded from the calculation of the materiality ratio.

Consequently, potential double counting can arise in the evaluation of the potential PPU perimeter.

Furthermore, Article 150(2) does not specify whether equity exposures not subject to RWA calculation according to Article 155 CRR (risk weighted at 250% and those deducted from CET1 in accordance with Part Two of CRR) should be excluded from the computation.

It follows that it is not clear how a credit institution with the prior permission to apply the SA (in PPU ex Article 150 CRR) for equity exposures should calculate the 10% threshold as per Article 150(2) CRR and in particular :

• Whether the amount of equity exposures in the numerator of the ratio should include all the equity exposures (also the ones deducted ex Articles 36 and 48 CRR and the ones at 250%RW ex Article 48(4);
• Whether 4 instead not 5 quarters should be considered in order to determine the average for calculating the denominator (i.e. own funds) of the ratio;
• Whether the participation in the capital of a central bank should be included in the numerator of the ratio;
• Whether in case the equity holdings are above the 10% threshold the institution has to use the AIRB RW (ex Article 155 CRR; not using anymore the SA ex Article 133 CRR) starting from the same quarter of the breach (i.e. no possibility to implement a sort of "plan" to return to compliance to remain within the Article 133). In this regard, we can imagine an example where a bank breaches the 10% threshold in 1Q2019 and in the 2Q2019 the bank manages to fix it returning within the 10% limit: it is nor clear whether the bank will apply the AIRB RW for 1Q and again the SA RW for the 2Q or whether there is a sort of "minimum period" of application of the AIRB RW or once breached the 10% threshold the bank will lose forever the possibility to apply the Article 133.