1.Subject to paragraph 3, for the purposes of calculating the value of exposures for the purposes of Article 111(1) to (3) Member States may, in respect of credit institutions using the Financial Collateral Comprehensive Method under Articles 90 to 93, in the alternative to availing of the full or partial exemptions permitted under points (f), (g), (h), and (o) of Article 113(3), permit such credit institutions to use a value lower than the value of the exposure, but no lower than the total of the fully-adjusted exposure values of their exposures to the client or group of connected clients.
Where this paragraph is applied to a credit institution, points (f), (g), (h), and (o) of Article 113(3) shall not apply to the credit institution in question.
For1. theseSubject purposes,to paragraph 3 of this Article, for the purposes of calculating the value of exposures for the purposes of Article 111(1) a credit institution may use the ‘fully adjusted exposure value’ means thatas calculated under Articles 90 to 9393, taking into account the credit risk mitigation, volatility adjustments, and any maturity mismatch (E*).
2. Subject to paragraph 3,3 of this Article, a credit institution permitted to use own estimates of LGDs and conversion factors for an exposure class under Articles 84 to 89 mayshall be permitted, where it is able to the satisfaction of the competent authorities to estimate the effects of financial collateral on their exposures separately from other LGD-relevant aspects, to recognise such effects in calculating the value of exposures for the purposes of Article 111(1) to (3).111(1).
Competent authorities shall be satisfied as to the suitability of the estimates produced by the credit institution for use for the reduction of the exposure value for the purposes of compliance with the provisions of Article 111.
Where a credit institution is permitted to use its own estimates of the effects of financial collateral, it shall do so on a basis consistent with the approach adopted in the calculation of capital requirements.
Credit institutions permitted to use own estimates of LGDs and conversion factors for an exposure class under Articles 84 to 89 which do not calculate the value of their exposures using the method referred to in the first subparagraph of this paragraph may beuse permittedthe toFinancial useCollateral Comprehensive Method or the approach set out in paragraph 1 or the exemption set out in Article 113(3)(o)117(1)(b) for calculating the value of exposures. A credit institution shall use only one of these two methods.
3. A credit institution that makes use of the Financial Collateral Comprehensive Method or is permitted to use the methodsmethod described in paragraphs 1 andparagraph 2 of this Article in calculating the value of exposures for the purposes of Article 111(1) to (3),111(1), shall conduct periodic stress tests of their credit-risk concentrations, including in relation to the realisable value of any collateral taken.
These periodic stress tests shall address risks arising from potential changes in market conditions that could adversely impact the credit institutions' adequacy of own funds and risks arising from the realisation of collateral in stressed situations.
The credit institution shall satisfy the competent authorities that the stress tests carried out are adequate and appropriate for the assessment of such risks.
In the event that such a stress test indicates a lower realisable value of collateral taken than would be permitted to be taken into account underwhile paragraphsmaking 1use andof the Financial Collateral Comprehensive Method or the method described in paragraph 2 of this Article as appropriate, the value of collateral permitted to be recognised in calculating the value of exposures for the purposes of Article 111(1) to (3) shall be reduced accordingly.
Such credit institutions shall include the following in their strategies to address concentration risk:
(a)policies and procedures to address risks arising from maturity mismatches between exposures and any credit protection on those exposures;
(b)policies and procedures in the event that a stress test indicates a lower realisable value of collateral than taken into account underwhile paragraphsmaking 1use andof the Financial Collateral Comprehensive Method or the method described in paragraph 2; and
(c)policies and procedures relating to concentration risk arising from the application of credit risk mitigation techniques, and in particular large indirect credit exposures, for example to a single issuer of securities taken as collateral.
4.Where the effects of collateral are recognised under the terms of paragraphs 1 or 2, Member States may treat any covered Part of the exposure as having been incurred to the collateral issuer rather than to the client.