The rule in plain words
Exposure weighted average lgd (%) cannot be more than 1.
EBA checks it for 14 rows, from total exposures (0010) to acquisition, development and construction (ADC) (0910). That makes 14 checks. A failure names the one that failed.
How the Line4 Check report words itShowHide
The first of its checks, word for word as the report shows it when it fails. The others read the same, with their own column, row or sheet.
Exposure weighted average lgd (%): From Contractual Cross Product netting sets <= 1
What to do if your filing fails it
- 01Open the template below and find the cells the rule reads.
- 02Look for a value outside the limit in these cells.
- 03If the value is a percentage, EBA expects it as a decimal: 12% is reported as 0.12.
- 04EBA compares the values exactly here: there is no rounding tolerance.
- 05It runs only when your filing indicators mark C 08.01 as reported.
- 06This is a warning. It does not stop the filing on its own, but your authority may ask you to explain it.
The cells it reads
Credit and counterparty credit risks and free deliveries: IRB approach to capital requirements - TOTAL (C 08.01.a)
Rows
- 0010Total exposures
- 0015Of which: exposures subject to SME-supporting factor
- 0017of which: Secured by mortgages on residential immovable property - non-IPRE
- 0018of which: Secured by mortgages on residential immovable property – IPRE
- 0019of which: Secured by mortgages on commercial immovable property - non-IPRE
- 0020On balance sheet items subject to credit risk
- 0030Off balance sheet items subject to credit risk
- 0040Securities Financing Transactions netting sets
- 0050Derivatives & Long Settlement Transactions netting sets
- 0060From Contractual Cross Product netting sets
- 0070Exposures assigned to obligor grades or pools: Total
- 0180Dilution risk: total purchased receivables
- 0900of which: Secured by mortgages on commercial immovable property – IPRE
- 0910of which: Acquisition, development and construction (ADC)
Column
- 0230Exposure weighted average lgd (%)
A worked example
The first of its checks, with simple numbers.
From contractual cross product netting sets, exposure weighted average lgd (%) can then be at most 1.
A file that reports 1 passes. One that reports 1.1 fails, by 0.1.
The numbers are illustrative.
Show the rule as writtenShowHide
EBA's formula, as written out for the first of its checks. Cells are written as {template, row, column, sheet}.
{C_08.01.a,r0060,c0230,} <= 1The next five:
{C_08.01.a,r0910,c0230,} <= 1{C_08.01.a,r0020,c0230,} <= 1{C_08.01.a,r0050,c0230,} <= 1{C_08.01.a,r0070,c0230,} <= 1{C_08.01.a,r0030,c0230,} <= 1And 8 more, the same formula for the other cells it covers.
Other rules on C 08.01.a
- Exposure weighted average LGD for large financial sector entities and unregulated financial entities cannot be more than 1 (v4822_m)Warning
- Total exposures, risk weighted exposure amount pre supporting factors must equal the sum of its seven parts (v4770_m)Not run yet
- The absolute value of guarantees plus the absolute value of credit derivatives plus the absolute value of other funded credit protection cannot be more than original exposure pre conversion factors (v4756_m)Warning
- Internal rating scale, PD assigned to the obligor grade or pool cannot be more than 1 (v6299_m)Warning
- Secured by immovable property: risk weighted exposure amount after supporting factor: SME must equal total exposures (v1673_m)Not run yet
- Risk weighted exposure amount after supporting factor: purchased receivables must equal total exposures (v1672_m)Not run yet
- Total outflows must equal the sum of its three parts (v1663_m)Warning
- Exposure after CRM substitution effects pre conversion factors must equal the sum of its three parts (v1662_m)Warning
Every COREP own funds rule, by template
Checks like this one, run at the point of submission, are the first step to real-time supervision.