Question
In ‘Annex II – Reporting on own funds and own funds requirements’ we find the following instructions: ‘3.4. Credit and counterparty credit risks and free deliveries: Information with geographical breakdown (CR GB) The term ‘residence of the obligor’ refers to the country of incorporation of the obligor. This concept can be applied on an immediate-obligor basis and on an ultimate-risk basis. Hence, CRM techniques can change the allocation of an exposure to a country. (…) Data regarding ‘original exposure pre conversion factors’ shall be reported referring to the country of residence of the immediate obligor. Data regarding ‘exposure value’ and ‘Risk weighted exposure amounts’ shall be reported as of the country of residence of the ultimate obligor.’ What does this mean for an exposure secured by mortgage on immovable property where obligor and immovable property are located in different countries?
Background on the question
E.g. we have an exposure where the obligor is a corporate located in Germany (1000 Euro exposure value) and the immovable property is located in the Netherlands (400 Euro collateral value). Do we have to report as described below in solution I or solution II? Solution I CR GB1 Germany: Row 70 Column 10 (Corporates): 600 Euro Row 90 Column 10 (Secured by mortgages on immovable property): 400 Euro Row 70 Column 75 (Corporates): 600 Euro CR GB1 Netherlands Row 90 Column 75 (Secured by mortgages on immovable property) 400 Euro Solution II CR GB1 Germany Row 70 Column 10 (Corporates): 600 Euro Row 70 Column 75 (Corporates): 600 Euro CR GB1 Netherlands Row 90 Column 10 (Secured by mortgages on immovable property): 400 Euro Row 90 Column 75 (Secured by mortgages on immovable property): 400 Euro
Answer
Paragraphs 79 and 80 of Annex II to Regulation (EU) No. 680/2014 (ITS on Supervisory Reporting) are only applicable to exposures where CRM techniques with substitution effects are considered. If other CRM techniques are used, the exposure shall always be assigned to the country where the immediate obligor of the exposure is located. For the example provided in the background to the question, this means that neither solution I nor II are correct. Assuming that the part of 400 Euro is assigned to the exposure class according to Article 112 (i) of Regulation (EU) No 5752013 (CRR), all parts of the exposure are reported in template C 09.01 (CR GB1) of Annex I to the ITS on Supervisory Reporting in the sheet for Germany: CR GB1 Germany: Row 070 (Corporates), column 010 (original exposure pre conversion factors): 600 Euro Row 070 (Corporates), column 075 (exposure value): 600 Euro Row 090 (Secured by mortgages on immovable property), column 010: 400 Euro Row 090 (Secured by mortgages on immovable property), column 075: 400 Euro.