Further enhancements of the Basel framework („Basel IV“) Concept Calibration TLAC: MREL: resolution plan (Pillar 2) Eligible instruments Excluded liabilities • Critical service Additional criteria • No preferential treatment Impact • All liabilities, if not • Covered deposits liab. • Not owed to the institution by national insolvency law common Pillar 1 Own Funds • Secured liabilities • Tax and social Regulatory Capital Principles Mechanisms requirement explicitly excluded itself • Bail-in evidence for • Minimum ratio including regular reporting and disclosure Global (FSB)/G-SIB: 5. Assessment of size, • Fiduciary liab. • Loss-absorbing and recapitalization capacity • Conversion into equity 1. Loss absorption, 2. Recapitalisation of 3. Liabilities excluded from 4. Deposit guarantee 6. Size and systemic risk: • Additional criteria security • Not funded directly/ liabilities subject to third requirements TLAC Term Sheet business/funding model, • Institution and • Continuity of functions, orderly resolution • Write-down 18% of RWA especially by own funds non-resolvable business bail-in due to operative scheme contribution effects on the financial defined for MREL/ authorities liab. indirectly by the institution country law • Depending on resolution scenario, requirements on risk profile, based on system (operator) • Stability of financial system (2022) functions importance or difficult considered system TLAC (Art 44, • DGS liab. (MREL) • Remaining maturity of at • Not subject to set off/ group and solo level (BCBS 342, FSB, BRRD) SREP results 45 BRRD, TLAC liabilities < 7 days • Short term least one year netting rights (TLAC only) • Integration in capital planning processes; consideration Own Funds Common Additional TLAC/MREL Eligible • No recourse to tax money EU/all CRR institutions: + Capital buffers valuation Termsheet) • Employee liab. deposits (TLAC) • Does not arise from a of higher funding costs Tier 2 • Total Loss-absorbing Capacity MREL/BRRD Equity Tier 1 Tier 1 • Minimum requirement for own Liabilities derivative Bottom line: 6,75% of LR exposure (TLAC) / double LR requirement (MREL) Resolution fund access: 8% of total liability funds and eligible liabilities Criteria Capital Requirements Max (Capital RequirementsIM ; Capital RequirementsSA x floor factor ) Capital Floors (BCBS 306, 362) Two alternatives possible: Risk-category based floor or overall floor Credit Risk Investments in funds (BCBS 266) Trading-book definition (BCBS 352) Operational risk (BCBS 355) Banking Book Trading Book Standards for the Allocation of Instruments para.12–17 Trading desk para. 22–26, App. A The Standardised Measurement Approach (SMA) Exposure value for derivatives and off balance sheet positions Banking book Trading book Trading book Trading book • Defined group of traders or trading accounts (mandatory) (mandatory) (approved deviation possible) (instruments being held for • Well defined and documented business strategy mandatory reasons) • A clear risk management structure Business Indicator (BI)5 = ILDC + SC + FC Off-balance sheet Per definiton • Approved by supervisor Standardised Approach (SA-CCR) (BCBS 279) Internal methods (IMM) Look-Through Approach (SA and IRB) items (SA) para. 64 ff • Equity investments in a fund in Instruments … • Equity investment with daily All instruments for one of the Interest, operating lease and dividend component (ILDC) = Min [|II – IE|, 0.035 x IEA] + |LI – LE| + DI Leverage which the bank cannot look- • Managed on a trading desk look-through following purposes, not listed Moving instruments between regulatory books para. 27–30 Modified Standardised Approach (IRB) + Adjustment Standardised Approach through daily • in the correlation trading • Listed equity before: EAD = 1.4 x (Replacement Cost + Potential Future Exposure) Direct credit substitutes 100% + CVA Services component (SC) = Max [OOI, OOE] + Max [|FI – FE|, Min{Max(FI, FE), 0.5 x uBI+0.1 x (Max (FI, FE) – 0.5 x uBI)}] Under consideration of wrong-way-risk • Unlisted equity portfolio • Accounting trading asset • Short-term resale • Compliance with bank’s policies • Giving rise to a net short • Approval by senior management and supervisor and CVA Mandate-Based Approach (SA and IRB) • Securitisation warehousing or liability • Profiting from short-term price Unmargined Transactions: (Variation margin is not exchanged) Other Commitments 50–75% • Retail and SME credit credit or equity position in • Market-making activities movements Financial component (FC) = |Net P&L on Trading Book| + |Net P&L on Banking Book| Internal Models RC = max{V – C; 0} aggregate the banking book Multiplier × AddOn Approach • Retail and Derivative • Traded repo-style • Locking in arbitrage profits Internal Risk Transfer para. 31–39 Short-term self-liq. trade letters 20% – Derivatives that have the above • Underwriting commitment transactions • Hedging risk that arise from II = Interest Income LE = Lease Expenses FI = Fee Income uBI = ILDC+Max(OOI;OOE)+Max(FI;FE)+FC Margined Transactions: (Variation margin is exchanged) Outsourcing Max (effective EPE; Fall-Back Approach (1,250%) instruments as underlying asset • Options the instruments mentioned • Only fromm BB to TB IE = Interest Expense DI = Dividend income FE = Fee Expenses ILDC = Interest, operating lease and dividend component (a) possible RC = max{V – C; TH + MTA – NICA; 0} ∑ AddOn for each asset class (a) effective EPE under Stress) • Hedging Positions above • credit/equity risk: only, when external hedge in TB IEA = Interest Earning Assets OOI = Other Operating Income uBI = unadjusted BI FC = Financial Component Retail commitments 10–20% LI = Lease Income OOE = Other Operating Expenses V = MTM value of the derivative transaction in a netting set C = Collateral Value per netting set, after haircut V – C TH = Threshold Amount related to collateral min {1; Floor + (1 – Floor) x exp ( 2 x (1 – Floor) x AddOnaggregate )} Buckets in the BI Component MTA = Minimum Transfer Amount related to collateral BI Range (€ Mln) 0–1,000 1,000–3,000 3,000–10,000 10,000–30,000 >30,000 NICA = Net Independent Collateral Amount Floor = 5% (BCBS 352) Market Risk Buckets 1 2 3 4 5 • Banks should comply with minimum BI Component, if Bucket 1 (BCBS 347) loss data standards under Pillar 1. RWA under Standardised Approach Standardised Approach SMA Capital = Loss Component • Loss data calculations must be of 110 Mln + (BI Component – 110 Mln) x Ln exp (1) – 1 + , if Buckets 2 – 5 { ( BI Component ) good-quality and based on a 10-year observation period. Ratings not available/permitted1,2 Ratings available1 Financing secured by Real Estate (RE) para. 49 ff Total Capital Charge • In the transition period, good-quality Standardised Credit Risk Assessment Approach Loss Component External Credit Risk Assessment Approach (ECRA) = loss data of minimum 5 years may (SCRA) 7 x Average Total Annual Loss Other Real estate Income-Producing RE ADC + 7 x Average Total Annual Loss only including loss events above € 10 milion be used, until the number of years Rating AAA to AA– A+ to A– BBB+ to BBB– BB+ to B– Below B– Grade A Grade B Grade C Sensitivities based Approach + 5 x Average Total Annual Loss only including loss events above € 100 milion reaches 10. Operational req.3,4 met RW = 150% • Banks must have documented Eligibility Default Risk Residual Risk Add-on procedures and processes for the criteria (AAA- 0.11 x BI, if Bucket 1 0% LTV ≤ 40% 25% identification, collection and treatment MDB rating, capital Delta Risk Vega Risk Curvature Risk 110 Mln + 0.15 x (BI – 1,000 Mln), if Bucket 2 LTV 40%–60% 30% BI Component = of internal loss data. para. 10 ff etc.) are met: 410 Mln + 0.19 x (BI – 3,000 Mln), if Bucket 3 LTV 60%–80% 35% LTV ≤ 60% 70% 1,740 Mln + 0.23 x (BI – 10,000 Mln), if Bucket 4 • Banks should adhere to the criteria for Base RW 20% 50% 100% 150% 50% LTV 80%–90% 45% LTV 60%–80% 90% • Based on sensitivities of a bank’s trading book to delta risk • Based on sensitivities to regulatory vega risk factors • Measures the incremental non-linear risk which is not Captures jump-to-default-risk • Separately calculated for all 6,340 Mln + 0.29 x (BI – 30,000 Mln), if Bucket 5 building “SMA loss data set” LTV 90%–100% 55% LTV > 80 120% factors defined by the supervisor • Similar aggregation formula as for delta risks captured by the delta risk of an option (JtD-risk) instruments bearing residual { Banks Base RW 20% 50% 100% 150% 50% 100% 150% LTV > 100% RW cp Relevant Risk • Delta sensitivities are used as inputs in the aggregation • Curvature risk charge (CVR) is first calculated across risk 5 Banks must determine the three-year average of the BI, as the sum of the three-year average of its components. Residential Classes para. 13 ff Short-term RW 20% 50% 150% 20% 50% 150% formula below instruments for each risk factor • Simple sum of gross notional Separate calculation of Operational requirements 3,4 not met • CVRs are then aggregated first within and then across amounts of the instruments General SME Inv. Grade JtD-risk of each instrument Corporates GIRR Instrument Aggregation buckets • RW = 1% for instruments with Sensitivity para. 31 ff Base RW 20% 50% 100% 150% 100% 85% 75% assignment to Risk factor Bucket across buckets an exotic underlying, 0.1% for “Risk that a bank may provide financial support to an entity beyond or in the absence Max. (100%; RW cp) 150% weighting risk classes and sensitivities aggregation within asset other instruments Step-in Risk (BCBS 349) of any contractual obligations, should the entity experience financial stress.”