On 28 May 2020, the European Commission adopted a Delegated Regulation (plus Annex) amending Delegated Regulation (EU) 2016/101 of 26 October 2015 supplementing the Capital Requirements Regulation (CRR) with regard to regulatory technical standards (RTS) for prudent valuation under Article 105(14) of the CRR.

The Delegated Act introduces a temporary adjustment aimed at mitigating increases in aggregated amounts of additional valuation adjustments (AVA) under the prudent valuation framework, and their excessive effect on amounts deducted from banks’ own funds as a result of the current period of extreme market volatility.

A temporary adjustment to Delegated Regulation (EU) 2016/101 is proposed, increasing the aggregation factor used to calculate the total AVA amount under the core approach from 50% to 66%. The increase is temporary (it will be applicable until 31 December 2020) and is meant to allow institutions to weather out the current extreme market volatility. Increasing the aggregation factor would reduce the total AVA amount, reducing the amount deducted from institutions’ common equity tier 1 capital.

The Delegated Act enters into force on the day following that of its publication in the Official Journal of the European Union.

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