The European Banking Authority (EBA) has published final draft regulatory technical standards (RTS) to specify the treatment of equity exposures under the internal ratings-based (IRB) approach under article 495(3) of the Capital Requirements Regulation (CRR).
The RTS establish that Member State competent authorities are allowed to grant institutions a temporary exemption from the IRB treatment for certain equity exposures held by institutions as at 31 December 2007, the last date of application of the (now repealed) Banking Consolidation Directive (BCD).
The exemption, which reflects article 154(6) of the BCD, permits institutions to avoid part of the increase in the capital requirement of the equity exposure class under the IRB approach. It is temporary and will end on 31 December 2017. The reason for the RTS being developed in this way is for continuity and the fact that the proposed change to the capital requirement of equity exposures held as at December 2007 would be immaterial in most institutions.
The EBA has submitted the RTS to the European Commission for their adoption as EU Regulations that will be directly applicable throughout the EU.
