S u b s e c t i o n 2

Calculation of requirements

Article 74

1. Save where otherwise provided, the valuation of assets and off-balance-sheet items shall be effected in accordance with the accounting framework to which the credit institution is subject under Regulation (EC) No 1606/2002 and Directive 86/635/EEC.

2. Notwithstanding the requirements laid down in Articles 68 to 72, the calculations to verify the compliance of credit institutions with the obligations laid down in Article 75 shall be carried out not less than twice each year.

The credit institutions shall communicate the results and any component data required to the competent authorities.

Subsection 3

Minimum level of own funds

Article 75

Without prejudice to Article 136, Member States shall require credit institutions to provide own funds which are at all times more than or equal to the sum of the following capital requirements:

(a) for credit risk and dilution risk in respect of all of their business activities with the exception of their trading book business and illiquid assets if deducted from own funds under Article 13(2)(d) of Directive 2006/49/EC, 8 % of the total of their risk-weighted exposure amounts calculated in accordance with Section 3;

(b) in respect of their trading-book business, for position risk, settlement and counter‑party risk and, in so far as the limits laid down in Articles 111 to 117 are authorised to be exceeded, for large exposures exceeding such limits, the capital requirements determined in accordance with Article 18 and Chapter V, Section 4 of Directive 2006/49/EC;

(c) in respect of all of their business activities, for foreign exchange risk and for commodities risk, the capital requirements determined according to Article 18 of Directive 2006/49/EC; and

(d) in respect of all of their business activities, for operational risk, the capital requirements determined in accordance with Section 4.

S e c t i o n 3

Minimum own funds requirements for credit risk

Article 76

Credit institutions shall apply either the Standardised Approach provided for in Articles 78 to 83 or, if permitted by the competent authorities in accordance with Article 84, the Internal Ratings Based Approach provided for in Articles 84 to 89 to calculate their risk-weighted exposure amounts for the purposes of Article 75(a).

Article 77

‘Exposure’ for the purposes of this Section means an asset or off balance sheet item.

Subsection 1

Standardised approach

Article 78

1. Subject to paragraph 2, the exposure value of an asset item shall be its balance-sheet value and the exposure value of an off‑balance sheet item listed in Annex II shall be the following percentage of its value: 100 % if it is a full-risk item, 50 % if it is a medium-risk item, 20 % if it is a medium/low-risk item, 0 % if it is a low-risk item.

The off-balance sheet items referred to in the first sentence of this paragraph shall be assigned to risk categories as indicated in Annex II. In the case of a credit institution using the Financial Collateral Comprehensive Method under Annex VIII, Part 3, where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value shall be increased by the volatility adjustment appropriate to such securities or commodities as prescribed in Annex VIII, Part 3, points 34 to 59.

(n) short-term claims on institutions and corporate;

(o) claims in the form of collective investment undertakings (‘CIU’); or

Credit quality may be determined by reference to the credit assessments of External Credit Assessment Institutions (‘ECAIs’) in accordance with the provisions of Articles 81 to 83 or the credit assessments of Export Credit Agencies as described in Annex VI, Part 1.

3. For the purposes of calculating risk-weighted exposure amounts for exposures to institutions, Member States shall decide whether to adopt the method based on the credit quality of the central government of the jurisdiction in which the institution is incorporated or the method based on the credit quality of the counterparty institution in accordance with Annex VI.

4. Notwithstanding paragraph 1, where an exposure is subject to credit protection the risk weight applicable to that item may be modified in accordance with Subsection 3.

5. Risk-weighted exposure amounts for securitised exposures shall be calculated in accordance with Subsection 4.

6. Exposures the calculation of risk-weighted exposure amounts for which is not otherwise provided for under this Subsection shall be assigned a risk-weight of 100 %.

7. With the exception of exposures giving rise to liabilities in the form of the items referred to in paragraphs (a) to (h) of Article 57, competent authorities may exempt from the requirements of paragraph 1 of this Article the exposures of a credit institution to a counterparty which is its parent undertaking, its subsidiary, a subsidiary of its parent undertaking or an undertaking linked by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC, provided that the following conditions are met:

(a) the counterparty is an institution or a financial holding company, financial institution, asset management company or ancillary services undertaking subject to appropriate prudential requirements;

(b) the counterparty is included in the same consolidation as the credit institution on a full basis;

(c) the counterparty is subject to the same risk evaluation, measurement and control procedures as the credit institution;

(d) the counterparty is established in the same Member State as the credit institution; and

(e) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the credit institution. In such a case, a risk weight of 0 % shall be assigned.

8. With the exception of exposures giving rise to liabilities in the form of the items referred to in points (a) to (h) of Article 57, competent authorities may exempt from the requirements of paragraph 1 of this Article the exposures to counterparties which are members of the same institutional protection scheme as the lending credit institution, provided that the following conditions are met:

(a) the requirements set out in points (a), (d) and (e) of paragraph 7;

(b) the credit institution and the counterparty have entered into a contractual or statutory liability arrangement which protects those institutions and in particular ensures their liquidity and solvency to avoid bankruptcy in case it becomes necessary (referred to below as an institutional protection scheme);

(c) the arrangements ensure that the institutional protection scheme will be able to grant support necessary under its commitment from funds readily available to it;

(d) the institutional protection scheme disposes of suitable and uniformly stipulated systems for the monitoring and classification of risk (which gives a complete overview of the risk situations of all the individual members and the institutional protection scheme as a whole) with corresponding possibilities to take influence; those systems shall suitably monitor defaulted exposures in accordance with Annex VII, Part 4, point 44;

(e) the institutional protection scheme conducts its own risk review which is communicated to the individual members;

(f) the institutional protection scheme draws up and publishes once in a year either, a consolidated report comprising the balance sheet, the profit-and-loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole, or a report comprising the aggregated balance sheet, the aggregated profit‑and‑loss account, the situation report and the risk report, concerning the institutional protection scheme as a whole;

(h) the multiple use of elements eligible for the calculation of own funds (‘multiple gearing’) as well as any inappropriate creation of own funds between the members of the institutional protection scheme shall be eliminated;