Question ID
2025_7335
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
325z
Paragraph
5
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Competent authority
Subject matter
Scaling of gross JTD amounts of securitisation tranches with a maturity less than one year
Question

Should the tranche maturity (MT) of less than one year of gross JTD amounts of securitisation tranches resulting from either formula in Art. 257(1) CRR be floored at one year as required by para. 2 of this Article, or can the MT be used without this floor of one year in order to enable scaling, with a floor of three months, as prescribed by Art. 325z(5) CRR in conjunction with Art. 325x(3) CRR? 

Background on the question

Pursuant to Art. 325z(5) CRR, “Article 325x shall apply to both existing securitisation exposures and to securitisation exposures used in accordance with paragraph 3 or 4 of this Article. The relevant maturities shall be those of the securitisation tranches. According to Art. 325x(3) CRR, “where no offsetting is possible gross JTD amounts shall equal net JTD amounts in the case of exposures with maturities of one year or more. Gross JTD amounts with maturities of less than one year shall be multiplied by the ratio of the exposure's maturity relative to one year, with a floor of three months, to calculate net JTD amounts.” Pursuant to Art. 257(2) CRR, “for the purposes of paragraph 1, the determination of a tranche maturity (MT) shall be subject in all cases to a floor of 1 year and a cap of 5 years.” 

In absence of a definition for the determination of a securitisation tranche maturity (MT) in the Market Risk context, one may refer to the weighted average maturity or the legal maturity as defined in Art. 257(1) CRR for Credit Risk. The resulting MT is floored at one year and capped at five years in accordance with para. 2 of this Article. Contrary to this, for Market Risk, Art. 325z(5) CRR in conjunction with Art. 325x(3) CRR prescribe that also gross JTD amounts of securitisation tranches with a MT less than one year shall be subject to scaling, with a floor of three months, to calculate net JTD amounts. However, as a consequence from the application of para. 2 of Art. 257 CRR, any MT less than one year resulting from the formulas in Art. 257(1) CRR would always be floored at one year. Therefore, in the Market Risk context, it is unclear whether 

  1. the floor of one year as required by para. 2 of Art. 257 CRR shall be applied to MTs of less than one year prior their usage in Art. 325(z) CRR and Art. 325x(3) CRR, or 
  2. whether those MTs shall be used without this floor of one year. 

Note that option 1) would effectively rule out any scaling, with a floor of three months, to the respective gross JTD amounts of securitisation tranches as prescribed by Art. 325z(5) CRR in conjunction with Art. 325x(3) CRR. 
Submission date
Final publishing date
Final answer

For the purposes of calculating own funds requirements for default risk in the context of market risk, institutions should use the general definition of a tranche maturity as provided in Article 257(1) of Regulation (EU) No 575/2013 (CRR), but without applying the one year-floor referred to in Article 257(2) CRR (i.e. corresponding to option 2 above). Institutions shall use the scaling laid down in Article 325x(3) CRR, in accordance with Article 325z(5) CRR, for securitisation tranches with a maturity shorter than one year.

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

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