1.For the purposes of Article 77d(3) and (4) of Directive 2009/138/EC, the portion of the average currency spread that is attributable to a realistic assessment of expected losses, unexpected credit risk or any other risk (‘risk correction’) shall be calculated in accordance with paragraphs 2 to 4 of this Article.
2.The risk correction on government bonds issued by Member States of the EEA shall be equal to the following:
RC = 30 %
min(S+· LTAS+) + 20 %
max {0, min(S+
-
LTAS+, LTAS+)} + 15 %
max(0, S+
-
2
LTAS+)
where:
S + denotes the maximum of zero and the average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio, as observed in financial markets;
LTAS + denotes the maximum of 0 and the long-term average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio, as observed in financial markets.
Without prejudice to the first subparagraph, the risk correction on government bonds issued by Member States of the European Economic Area shall never exceed the maximum of zero and 65 % of the long-term average spread of government bonds issued by Member States of the European Economic Area of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.
3.The risk correction on bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations in the representative portfolio, shall be equal to the following:
RC = 50 %
min(S+, LTAS+) + 40 %
max {0, min(S+
-
LTAS+, LTAS+)} + 30 %
max(0, S+
-
2
LTAS+)
where:
S + denotes the maximum of zero and the average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets;
LTAS + denotes the maximum of 0 and the long-term average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.
Without prejudice to the first subparagraph, the risk correction on bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class shall never exceed the maximum of zero and 125 % of the long-term average spread of bonds other than government bonds issued by Member States of the European Economic Area, loans and securitisations of the same duration, credit quality and asset class in the representative portfolio as observed in financial markets.
4.The long-term average spreads referred to in paragraph 2, point (b), and paragraph 3, point (b), shall be based on data relating to the last 30 years. Where a part of those data is not available, that part shall be replaced by constructed data. The constructed data shall be based on the available and reliable data relating to the last 30 years. Data that are not reliable shall be replaced by constructed data using that methodology. The constructed data shall be based on prudent assumptions.