in force 2025-01-01 MODIFIED+746 −1,409§
Amended by Regulation (EU) 2024/1623 32024R1623 · Regulation (EU) 2024/2987 32024R2987 · Regulation (EU) 2024/2795 32024R2795
applies from: unchanged
Paragraph 1 now describes the internal model approach as available for securities financing transactions or other capital market-driven transactions other than derivatives covered by an eligible master netting agreement meeting Chapter 6, Section 7 requirements, with use conditioned on meeting paragraph 2, replacing the prior wording that framed the approach as an alternative to the Supervisory Volatility Adjustments Approach or Own Estimates Approach and separately addressed margin lending transactions.
Paragraph 2 is rewritten to set out two conditions for use of the internal model approach, namely that it be applied only to exposures whose risk-weighted amounts are calculated under the IRB Approach in Chapter 3, and that the institution be granted permission by its competent authority, replacing the earlier text that allowed use for margin lending transactions under a bilateral master netting agreement meeting Chapter 6, Section 7 requirements.
Paragraph 3 no longer states that an institution may choose the internal models approach independently of its choice between the Standardised Approach and the IRB Approach, nor does it mention obtaining permission under Title IV, Chapter 5 or applying separately for permission under this Article; it now simply requires the approach to be used for all counterparties and securities except immaterial portfolios, for which the Supervisory Volatility Adjustments Approach under Article 220 may be used, omitting the prior reference to the Own Estimates Approach as an alternative for such portfolios.
Cited: Art. 221, v1 · Art. 221, v2
text before / after
02013R0575-20240709 → 02013R0575-20250101
Article 221
Using the internal models approach for master netting agreements
1. Subject to permission For the purpose of competent authorities, institutions may, as an alternative to using the Supervisory Volatility Adjustments Approach or the Own Estimates Approach in calculating the fully adjusted risk-weighted exposure value (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, amounts and expected loss amounts for securities or commodities lending or borrowing transactions, financing transactions or other capital market driven market-driven transactions other than derivative transactions, use transactions covered by an internal models approach which takes into account correlation effects between security positions subject to the master netting agreement as well as the liquidity of the instruments concerned.
2. Subject to the permission of the competent authorities, institutions may also use their internal models for margin lending transactions, where the transactions are covered under a bilateral eligible master netting agreement that meets the requirements set out in Chapter 6, Section 7. 7, an institution may calculate the fully adjusted exposure value (E*) of the agreement using the internal model approach, provided that the institution meets the conditions set out in paragraph 2.
2. An institution may use the internal model approach where all of the following conditions are met:
(a) the institution uses that approach only for exposures for which the risk-weighted exposures amounts are calculated under the IRB Approach set out in Chapter 3;
(b) the institution is granted the permission to use that approach by its competent authority.
3. An institution may choose to use that uses an internal models model approach independently of the choice it has made between the Standardised Approach and the IRB Approach for the calculation of risk-weighted exposure amounts. However, where an institution seeks to use an internal models approach, it shall do so for all counterparties and securities, excluding with the exception of immaterial portfolios where for which it may use the Supervisory Volatility Adjustments Approach or the Own Estimates Approach as laid down in Article 220.
Institutions that have received permission for an internal risk-measurement model under Title IV, Chapter 5 may use the internal models approach. Where an institution has not received such permission, it may still apply for permission to the competent authorities to use an internal models approach for the purposes of this Article.
4. Competent authorities shall permit an institution to use an internal models approach only where they are satisfied that the institution's system for managing the risks arising from the transactions covered by the master netting agreement is conceptually sound and … 334 unchanged words … institution may use empirical correlations within risk categories and across risk categories where its system for measuring correlations is sound and implemented with integrity.
6. Institutions using the internal models approach shall calculate E* in accordance with the following formula:E *max0,i Ei i Ci potential EiiCipotential change in value
where:
Ei
the exposure value for each separate exposure i under the agreement that would apply in the absence of the credit protection, where institutions calculate the risk-weighted exposure amounts under the Standardised Approach or where they calculate risk-weighted exposure … 356 unchanged words … draft regulatory technical standards to the Commission by 31 December 2015.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010.