A common question we are asked is the basis on which own funds requirement has to be calculated for the various types of exposures on the non-trading and trading book.

The approach to evaluating risk weight for Collective Investment Undertaking (CIU) exposures has changed under the new CRR2 rules. There are three approaches outlined, and banks can select the specific approach based on the amount of information available about the underlying exposures of the CIUs.

Prudently valued software assets no longer needs to be deducted from CET-1 capital, but can be risk weighted.

The large exposure limits are set based on the bank’s Tier-1 Capital Only.

As part of Covid-19 quick fix, the existing IFRS9 transitional arrangement for CET-1 capital adjustment has been extended by 2 years and the additional adjustment for ECL provisions recognised in 2020 and 2021 has also been provided.

SME support factor of 0.7619 for exposures up to €2.5 million and 0.85 for exposures above €2.5 million, for entities with turnover of up to €50 million.

Infrastructure supporting factor of 0.75 can be applied in calculating the own funds requirement for exposures to eligible infrastructure exposures/projects.

CVA means an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty. That adjustment reflects the current market value of the credit risk of the counterparty to the institution.