Version in force , Modified +2,081 −368§
Amended by Regulation (EU) 2021/424 32021R0424 on EUR-Lex (external, EUR-Lex)
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The definitions of Vnotional in paragraphs 1 and 2 now refer to the notional amount of the instrument from which the exposure arises, and the Adjustmentlong and Adjustmentshort terms are now stated to apply specifically where that instrument is a derivative instrument.
Paragraph 4's determination of notional amounts changed from covering debt instruments generally and derivative instruments with debt security underlyings to instead addressing bonds specifically, sold put options on bonds, and bought call options on bonds, with the latter set at a notional amount of 0.
Paragraph 5's equity formulas were rewritten to use Vnotional in place of V, with Vnotional defined by reference to the fair value of the equity for cash equity instruments and entering the JTDshort formula with a negative sign, and paragraph 8(a) now describes the regulatory technical standards as specifying how institutions determine the P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort components rather than how they calculate JTD amounts generally.
Cited: Art. 325w, v1 (external, EUR-Lex) · Art. 325w, v2 (external, EUR-Lex)
v1 is the previous version, v2 this one.
Text from EUR-Lex, before and after
Previous version, in force 28 June 2021 02013R0575-20210629 → this version, in force 30 September 2021 02013R0575-20210930
Article 325w
Gross jump-to-default amounts
1. Institutions shall calculate the gross JTD amounts for each long exposure to debt instruments as follows:
JTDlong = max {LGD Vnotional + P&Llong + Adjustmentlong; 0}
where:
JTDlong
the gross JTD amount for the long exposure;
Vnotional
the notional amount of the instrument; instrument from which the exposure arises;
P&Llong
a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative; negative sign; and
Adjustmentlong
where the instrument from which the exposure arises is a derivative instrument, the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter into the Adjustmentlong term formula with a positive sign and decreases shall enter into the formula with a negative sign.
2. Institutions shall calculate the gross JTD amounts for each short exposure to debt instruments as follows:
JTDshort = min {LGD Vnotional + P&Lshort + Adjustmentshort; 0}
where:
JTDshort
the gross JTD amount for the short exposure;
Vnotional
the notional amount of the instrument from which the exposure arises that shall enter into the formula with a negative sign;
P&Lshort
a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
Adjustmentshort
where the instrument from which the exposure arises is a derivative instrument, the amount by which, due to the structure of the derivative instrument, the institution's gain in the event of default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter into the Adjustmentshort term formula with a positive sign and increases shall enter into the Adjustmentshort term formula with a negative sign.
3. For the purposes of the calculation set out in paragraphs 1 and 2, the LGD for debt instruments to be applied by institutions shall be the following:
(a) exposures to non-senior debt instruments shall be assigned an LGD of 100 %;
(b) exposures to senior debt instruments shall be assigned an LGD of 75 %;
(c) exposures to covered bonds, as referred to in Article 129, shall be assigned an LGD of 25 %.
4. For the purposes of the calculations set out in paragraphs 1 and 2, notional amounts shall be determined as follows:
(a) in the case of debt instruments, a bond, the notional amount is the face value of the debt instrument; bond;
(b) in the case of derivative instruments with debt security underlyings, a sold put option on a bond, the notional amount is the notional amount of the derivative instrument. option; in the case of a bought call option on a bond, the notional amount is 0.
5. For exposures to equity instruments, institutions shall calculate the gross JTD amounts as follows, instead of using the formulas referred to in paragraphs 1 and 2: follows:
JTDlong = max {LGD · V Vnotional + P&Llong + Adjustmentlong; 0}
JTDshort = min {LGD · V Vnotional + P&Lshort + Adjustmentshort; 0}
where:
JTDlong
the gross JTD amount for the long exposure;
Vnotional
the notional amount of the instrument from which the exposure arises; the notional amount is the fair value of the equity for cash equity instruments; for the JTDshort formula, the notional amount of the instrument shall enter into the formula with a negative sign;
P&Llong
a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the instrument creating the long exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign;
Adjustmentlong
the amount by which, due to the structure of the derivative instrument, the institution's loss in the event of default would be increased or reduced relative to the full loss on the underlying instrument; increases shall enter into the formula with a positive sign and decreases shall enter into the formula with a negative sign;
JTDshort
the gross JTD amount for the short exposure; and
V P&Lshort
a term which adjusts for gains or losses already accounted for by the institution due to changes in the fair value of the equity or, instrument creating the short exposure; gains shall enter into the formula with a positive sign and losses shall enter into the formula with a negative sign; and
Adjustmentshort
the amount by which, due to the structure of the derivative instrument, the institution's gain in the case event of derivative instruments default would be increased or reduced relative to the full loss on the underlying instrument; decreases shall enter into the formula with equity underlyings, a positive sign and increases shall enter into the fair value of the equity underlying. formula with a negative sign.
6. Institutions shall assign an LGD of 100 % to equity instruments for the purposes of the calculation set out in paragraph 5.
7. In the case of exposures to default risk arising from derivative instruments whose pay-offs in the event of default of the obligor are not related to the notional amount of a specific instrument issued by that obligor or to the LGD of the obligor or an instrument issued by that obligor, institutions shall use alternative methodologies to estimate the gross JTD amounts.
8. EBA shall develop draft regulatory technical standards to specify:
(a) how institutions are to calculate determine the components P&Llong, P&Lshort, Adjustmentlong and Adjustmentshort when calculating the JTD amounts for different types of instruments in accordance with this Article;
(b) which alternative methodologies institutions are to use for the purposes of the estimation of gross JTD amounts referred to in paragraph 7.
(c) the notional amounts of instruments other than the ones referred to in points (a) and (b) of paragraph 4.
EBA shall submit those draft regulatory technical standards to the Commission by 28 June 2021.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.