Article 429
Calculation of the leverage ratio
1. Institutions shall calculate their leverage ratio in accordance with the methodology set out in paragraphs 2 to 11.
2. The leverage ratio shall be calculated as an institution's capital measure divided by that institution's total exposure measure and shall be expressed as a percentage.
Institutions shall calculate the leverage ratio as the simple arithmetic mean of the monthly leverage ratios over a quarter.
3. For the purposes of paragraph 2, the capital measure shall be the Tier 1 capital.
4. The total exposure measure is the sum of the exposure values of all assets and off-balance sheet items not deducted when determining the capital measure referred to in paragraph 3.
Where institutions include a financial sector entity in which they hold a significant investment in accordance with Article 43 in their consolidation according to the applicable accounting framework, but not in their prudential consolidation in accordance with Chapter 2 of Title II of Part One, they shall determine the exposure value for the significant investment not in accordance with point (a) of paragraph 5 of this Article but as the amount that is obtained by multiplying the amount defined in point (a) of this subparagraph with the factor defined in point (b) of this subparagraph:
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(a) |
the sum of the exposure values of all exposures of the financial sector entity in which the significant investment is held; |
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(b) |
for all direct, indirect and synthetic holdings of the institution of the Common Equity Tier 1 instruments of the financial sector entity, the total amount of such items not deducted pursuant to Article 47 and point (b) of Article 48(1) divided by the total amount of such items. |
5. Institutions shall determine the exposure value of assets in accordance with the following principles:
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(a) |
the exposure values of assets excluding contracts listed in Annex II and credit derivatives, means exposure values in accordance with the first sentence of Article 111(1); |
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(b) |
physical or financial collateral, guarantees or credit risk mitigation purchased shall not be used to reduce exposure values of assets; |
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(c) |
loans shall not be netted with deposits. |
6. Institutions shall determine the exposure value of contracts listed in Annex II and of credit derivatives including those that are off-balance sheet, in accordance with the method set out in Article 274.
In determining the exposure value of contracts listed in Annex II and of credit derivatives, institutions shall take into account the effects of contracts for novation and other netting agreements, except contractual cross-product netting agreements, in accordance with Article 295.
7. By way of derogation from paragraph 6, institutions may use the method set out in Article 275 to determine the exposure value of contracts listed in points 1 and 2 of Annex II only where they also use that method for determining the exposure value of those contracts for the purposes of meeting the own funds requirements set out in Article 92.
8. When determining the potential future credit exposure of credit derivatives, institutions shall apply the principles laid down in Article 299(2) to all their credit derivatives, not just those assigned to the trading book.
9. Institutions shall determine the exposure value of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions including those that are off-balance sheet, in accordance with Article 220(1) to (3) and Article 222, and shall take into account the effects of master netting agreements, except contractual cross-product netting agreements, in accordance with Article 206.
10. Institutions shall determine the exposure value of off-balance sheet items, except the items referred to in paragraphs 6 and 9 of this Article, in accordance with Article 111(1), subject to the following amendments to the conversion factors listed in that Article:
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(a) |
the conversion factor to be applied to the nominal value for undrawn credit facilities, which may be cancelled unconditionally at any time without notice, referred to in points 4(a) and (b) of Annex I, is 10 %; |
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(b) |
the conversion factor for medium/low risk trade finance related off-balance sheet items referred to in point 3(a) of Annex I and to officially supported export credits related off-balance sheet items referred to in point 3(b)(i) of Annex I is 20 %; |
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(c) |
the conversion factor for medium risk trade finance related off-balance sheet items referred to in points 2(a) and 2(b)(i) of Annex I and to officially supported export credits related off-balance sheet items referred to in point 2(b)(ii) of Annex I is 50 %; |
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(d) |
the conversion factor for all other off-balance sheet items listed in Annex I is 100 %. |
11. Where national generally accepted accounting principles recognises fiduciary assets on balance sheet, in accordance with Article 10 of Directive 86/635/EEC, those assets may be excluded from the leverage ratio total exposure measure provided that they meet the criteria for non-recognition set out in International Accounting Standard (IAS) 39, as applicable under Regulation (EC) No 1606/2002, and, where applicable, the criteria for non-consolidation set out in International Financial Reporting Standard (IFRS) 10, as applicable under Regulation (EC) No 1606/2002.