1.Institutions shall calculate their leverage ratio in accordance with the methodology set out in paragraphs 2 to 11.13.
2.The leverage ratio shall be calculated as an institution's capital measure divided by that institution's total exposure measure and shall be expressed as a percentage.
Institutions shall calculate the leverage ratio asat the simplereporting arithmeticreference mean of the monthly leverage ratios over a quarter.date.
3.For the purposes of paragraph 2, the capital measure shall be the Tier 1 capital.
Where institutions include a financial sector entity in which they hold a significant investment in accordance with Article 43 in their consolidation according to the applicable accounting framework, but not in their prudential consolidation in accordance with Chapter 2 of Title II of Part One, they shall determine the exposure value for the significant investment not in accordance with point (a) of paragraph 5 of this Article but as the amount that is obtained by multiplying the amount defined in point (a) of this subparagraph with the factor defined in point (b) of this subparagraph:
(a)the sum of the exposure values of all exposures of the financial sector entity in which the significant investment is held;
(b)for all direct, indirect and synthetic holdings of the institution of the Common Equity Tier 1 instruments of the financial sector entity, the total amount of such items not deducted pursuant to Article 47 and point (b) of Article 48(1) divided by the total amount of such items.
4.The total exposure measure shall be the sum of the exposure values of:
(a)4. The total exposure measure is the sum of the exposure values of all assets andreferred off-balanceto sheetin itemsparagraph not5 unless they are deducted when determining the capital measure referred to in paragraph 3.3;
(b)derivatives referred to in paragraph 9;
(c)add-ons for counterparty credit risk of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions including those that are off-balance sheet referred to in Article 429b;
(d)off-balance sheet items referred to in paragraph 10.
5.Institutions shall determine the exposure value of assetsassets, excluding contracts listed in Annex II and credit derivatives, in accordance with the following principles:
(a)the exposure values of assets excluding contracts listed in Annex II and credit derivatives, means exposure values in accordance with the first sentence of Article 111(1);
(b)physical or financial collateral, guarantees or credit risk mitigation purchased shall not be used to reduce exposure values of assets;
In determining the exposure value of contracts listed in Annex II and of credit derivatives, institutions shall take into account the effects of contracts for novation and other netting agreements, except contractual cross-product netting agreements, in accordance with Article 295.
7.By way of derogation from paragraph 6, institutions may use the method set out in Article 275 to determine the exposure value of contracts listed in points 1 and 2 of Annex II only where they also use that method for determining the exposure value of those contracts for the purposes of meeting the own funds requirements set out in Article 92.
8.When determining the potential future credit exposure of credit derivatives, institutions shall apply the principles laid down in Article 299(2) to all their credit derivatives, not just those assigned to the trading book.
10.Institutions shall determine the exposure value of off-balance sheet items, except the items referred to in paragraphs 6 and 9 of this Article, in accordance with Article 111(1), subject to the following amendments to the conversion factors listed in that Article:
(a)the conversion factor to be applied to the nominal value for undrawn credit facilities, which may be cancelled unconditionally at any time without notice, referred to in points 4(a) and (b) of Annex I, is 10 %;
(b)the conversion factor for medium/low risk trade finance related off-balance sheet items referred to in point 3(a) of Annex I and to officially supported export credits related off-balance sheet items referred to in point 3(b)(i) of Annex I is 20 %;
(c)the conversion factor for medium risk trade finance related off-balance sheet items referred to in points 2(a) and 2(b)(i) of Annex I and to officially supported export credits related off-balance sheet items referred to in point 2(b)(ii) of Annex I is 50 %;
(d)the conversion factor for all other off-balance sheet items listed in Annex I is 100 %.
(c)loans shall not be netted with deposits.deposits;
(d)9. Institutions shall determine the exposure value of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions including those that are off-balance sheet, in accordance with Article 220(1) to (3) and Article 222, and shall takenot intobe account the effects of master netting agreements, except contractual cross-product netting agreements, in accordance with Article 206.netted.
6.Institutions may deduct from the exposure measure set out in paragraph 4 of this Article the amounts deducted from Common equity Tier 1 capital in accordance with Article 36(1)(d).
7.Competent authorities may permit an institution not to include in the exposure measure exposures that can benefit from the treatment laid down in Article 113(6). Competent authorities may grant that permission only where all the conditions set out in points (a) to (e) of Article 113(6) are met and where they have given the approval laid down in Article 113(6).
8.By way of derogation from point (d) of paragraph 5, institutions may determine the exposure value of cash receivables and cash payables of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions with the same counterparty on a net basis only if all the following conditions are met:
(a)the transactions have the same explicit final settlement date;
(b)the right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable in all the following situations:
(i)in the normal course of business;
(ii)in the event of default, insolvency and bankruptcy;
(c)the counterparties intend to settle net, settle simultaneously, or the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement.
For the purposes of point (c) of the first subparagraph, a settlement mechanism results in the functional equivalent of net settlement if, on the settlement date, the net result of the cash flows of the transactions under that mechanism is equal to the single net amount under net settlement.
9.6. Institutions shall determine the exposure value of contracts listed in Annex II and of credit derivatives including those that are off-balance sheet, in accordance with the method set out in Article 274.429a.
10.Institutions shall determine the exposure value of off-balance-sheet items, excluding contracts listed in Annex II, credit derivatives, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions, in accordance with Article 111(1). However, institutions shall not reduce the nominal value of those items by specific credit risk adjustments.
In accordance with Article 166(9), where a commitment refers to the extension of another commitment, the lower of the two conversion factors associated with the individual commitment shall be used. The exposure value of low risk off- balance sheet items referred to in Article 111(1)(d) shall be subject to a floor equal to 10 % of their nominal value.
11.An institution that is a clearing member of a QCCP may exclude from the calculation of the exposure measure trade exposures of the following items, provided that those trade exposures are cleared with that QCCP and meet, at the same time, the conditions laid down in Article 306(1)(c):
(a)contracts listed in Annex II;
(b)credit derivatives;
(c)repurchase transactions;
(d)securities or commodities lending or borrowing transactions;
(e)long settlement transactions;
(f)margin lending transactions.
12.Where an institution that is a clearing member of a QCCP guarantees to the QCCP the performance of a client that enters directly into derivative transactions with the QCCP, it shall include in the exposure measure the exposure resulting from the guarantee as a derivative exposure to the client in accordance with Article 429a.
13.11. Where national generally accepted accounting principles recognisesrecognise fiduciary assets on balance sheet, in accordance with Article 10 of Directive 86/635/EEC, those assets may be excluded from the leverage ratio total exposure measure provided that they meet the criteria for non-recognition set out in International Accounting Standard (IAS) 39, as applicable under Regulation (EC) No 1606/2002, and, where applicable, the criteria for non-consolidation set out in International Financial Reporting Standard (IFRS) 10, as applicable under Regulation (EC) No 1606/2002.
14.Competent authorities may permit an institution to exclude from the exposure measure exposures that meet all of the following conditions:
(a)they are exposures to a public sector entity;
(b)they are treated in accordance with Article 116(4);
(c)they arise from deposits that the institution is legally obliged to transfer to the public sector entity referred to in point (a) for the purposes of funding general interest investments.