Large Exposure and Million Credit Reporting - Reporting Technology

Informational Session Large Exposure and Million Credit Reporting - Reporting Technology Note: The informational session reflects a preliminary state of information. In addition, the regulations issued in the meantime regarding large exposure and million credit reporting must be observed (ITS including annexes and GroMikV including annexes). 08 July 2013

Agenda: ❙ Welcome and Overview ❙ Reporting Technology Impacts of the Separation of Large Exposure and Million Credit Reporting ❙ Fundamentals of the New Large Exposure Reporting ❙ Notification Obligations in Large Exposure Reporting ❙ New Reporting Formats ❙ New Master Data Notifications ❙ Introduction of Master Data Feedback ❙ Modernization of Million Credit Reporting ❙ Changes in the Reporting of Borrowers and Borrower Units ❙ Reduction of the Million Credit Reporting Threshold ❙ Expansion of the Credit Definition ❙ Selected Questions on the Reporting Technology of Large Exposure and Million Credit Reporting 08 July 2013 Page 2 Stefan Kadletz, B 422

Separation of Large and Million Credit Reporting: ❙ Integration of large exposure reporting into COREP ❙ Definition of large exposure amount data by ITS, but no European regulations for large exposure master data ❙ Reporting of large exposure amount data exclusively with identification numbers for borrowers and groups of connected clients ❙ Different submission deadlines for large and million credit amount data ❙ Processing of COREP reporting with taxonomy according to EBA requirements ❙ make the separation of large and million credit reporting necessary 08 July 2013 Page 3 Stefan Kadletz, B 422

Large Exposure Reporting Overview: ❙ six forms for amount data ❙ LE-Limits for institution-specific large exposure upper limits ❙ LE1 for identification of the borrower / group of connected clients ❙ LE2 for large exposure reporting ❙ LE3 for breakdown of groups of connected clients into individual borrowers ❙ LE4 for breakdown by remaining maturity bands ❙ LE5 for breakdown of groups of connected clients into individual borrowers by remaining maturities ❙ upstream, ongoing master data procedure in national design ❙ Forwarding of large exposure data by national supervisory authorities to EBA 08 July 2013 Page 4 Stefan Kadletz, B 422

Large Exposure Master Data Reporting Overview: ❙ ongoing master data submission ❙ Submission no later than 15 business days after the reference date ❙ in paper form ❙ Generation possible via data entry platform ❙ Adaptation of the forms for master data individual notification 08 July 2013 Page 5 Stefan Kadletz, B 422

Large Exposure Master Data Reporting Ongoing Submission: ❙ Large exposure amount data reporting must be done with the Bundesbank identification number ❙ Upstream master data procedure is required ❙ Since master data must be finalized by the 30th business day, upstream, ongoing master data submission is required ❙ As soon as a reporting obligation with master data new creation / change is recognized during the monitoring period, submit master data notification immediately 08 July 2013 Page 6 Stefan Kadletz, B 422

Large Exposure Master Data Reporting Timeline: ❙ Submission of large exposure master data forms ongoing, no later than by the 15th business day after the reporting reference date ❙ Master data processing, assignment of identification numbers, recording of changes by Bundesbank ❙ Processing deadline for large exposure master data on the 24th business day after the reporting reference date ❙ Creation and dispatch of master data feedback on the 25th business day after the reporting reference date 08 July 2013 Page 7 Stefan Kadletz, B 422

Large Exposure Reporting Deadline Overview: ❙ Note extension for the first reporting reference date 31.03.2014 to 30 May 08 July 2013 Page 8 Stefan Kadletz, B 422

Million Credit Master Data Reporting via Data Entry Platform Timeline: ❙ Receipt of forms EA ongoing, no later than by the 5th business day after the reporting reference date ❙ Master data processing, assignment of identification numbers, recording of changes by Bundesbank ❙ Processing deadline for million credit master data from data entry platform submitters on the 9th business day after the reporting reference date ❙ Creation and dispatch of new identification numbers in PDF format on the 10th business day after the reporting reference date 08 July 2013 Page 9 Stefan Kadletz, B 422

Large and Million Credit Reporting Deadline Overview: 08 July 2013 Page 10 Stefan Kadletz, B 422

Large Exposure Legal Basis: ❙ Articles 387 to 403 CRR ❙ ITS on Supervisory reporting requirements for institutions, Chapter 5 ❙ reporting on large exposures templates, Annex VIII of the ITS ❙ reporting on large exposures instructions, Annex IX of the ITS ❙ § 13 KWG: e.g., resolution by executive board ❙ Large Exposure and Million Credit Ordinance (GroMiKV) 08 July 2013 Page 11 Stefan Kadletz, B 422

Large Exposure Notification Obligations (Art. 394 CRR): ❙ 10% of eligible own funds reached or exceeded (Art. 392 CRR) ❙ for IRB banks: 20 largest loans at group level excluding loans exempted under Art. 395(1) ❙ 10 largest loans at group level to financial institutions ❙ 10 largest loans at group level to non-supervised financial undertakings ❙ Notification obligation for all large loans of €300 million or more, legal basis only in ITS Art. 5 in conjunction with Art. 95 CRR 08 July 2013 Page 12 Stefan Kadletz, B 422

Large Exposure Notification Obligations Basis of Calculation: ❙ Basis for triggering the reporting obligation ❙ Large exposure, 10% of eligible own funds reached or exceeded: 210 (Total before CRM) ❙ 20 largest loans: 210 (Total before CRM) minus 320 (excluded amounts) ❙ 10 largest loans to financial institutions: 210 (Total before CRM) ❙ 10 largest loans to non-supervised financial undertakings: 210 (Total before CRM) ❙ Large loans from €300 million: 210 (Total before CRM) ❙ Threshold for large loans from €300 million not explicitly stated 08 July 2013 Page 13 Stefan Kadletz, B 422

Large Exposure Notification Obligations (Art. 394 CRR): 08 July 2013 Page 14 Stefan Kadletz, B 422 Special Cases: Reporting of jointly and severally liable borrowers is done by adding to the debt of the partners Special case: ❙ Notification obligation only for loans that reach a reporting threshold on the reporting reference date ❙ No more "0 notifications"

Large Exposure Reporting Format LE-Limits: The form LE-Limits: ❙ Used by every large exposure lender to report institution-specific large exposure upper limits 08 July 2013 Page 15 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE1, LE2 and LE3: Breakdown of large exposure notifications according to Art 394 CRR notification obligations: An institution reports all large exposures to the competent authorities, even if they are exempted from the application of Article 395(1), and states the following: a) Name of the customer or group of connected clients to whom the institution granted the large exposure; b) Risk exposure value, possibly before taking into account the effect of credit risk mitigation; c) Type of collateral/security used, with or without cash collateral; d) Risk exposure value after taking into account the effect of credit risk mitigation calculated for the purposes of Article 395(1). Additionally detailed data collection: To close data gaps for macroprudential analysis 08 July 2013 Page 16 Stefan Kadletz, B 422

Large Exposure Reporting Format LE1: The form LE1: ❙ Name of the customer or group of connected clients 08 July 2013 Page 17 Stefan Kadletz, B 422

Large Exposure Reporting Format LE1 Special Cases: Special cases: ❙ Names of borrowers and groups in plain text available ❙ Reporting of the LEI of the parent for groups of connected clients ❙ Reporting of the sector of borrowers according to FINREP sector classification ❙ Reporting of the NACE code for borrowers from the sectors "other financial companies" and "non-financial companies" ❙ No reporting of country code, sector and NACE code for groups of connected clients 08 July 2013 Page 18 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE2 and LE3: The forms LE2 and LE3 (Part 1): ❙ Risk exposure value before taking into account the effect of credit risk mitigation 08 July 2013 Page 19 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE2 and LE3: The forms LE2 and LE3 (Part 2): ❙ Type of collateral used 08 July 2013 Page 20 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE2 and LE3: The forms LE2 and LE3 (Part 3): ❙ Risk exposure value after taking into account the effect of credit risk mitigation 08 July 2013 Page 21 Stefan Kadletz, B 422

Large Exposure Reporting Format LE2: ❙ Use for every large exposure ❙ to groups of connected clients ❙ to unbound borrowers ❙ 20 largest loans of IRB banks ❙ 10 largest loans to financial institutions ❙ 10 largest loans to non-supervised financial undertakings ❙ large loans from €300 million 08 July 2013 Page 22 Stefan Kadletz, B 422

Large Exposure Reporting Format LE3: ❙ Use for breakdown of groups of connected clients ❙ one LE3 for each individual borrower in a group of connected clients ❙ unbound borrower in LE2 does not need to be reported again with LE3 ❙ 20 largest loans of IRB banks ❙ 10 largest loans to financial institutions ❙ 10 largest loans to non-supervised financial undertakings ❙ large loans from €300 million 08 July 2013 Page 23 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE2 and LE3: Special cases: ❙ Reporting of borrowers assigned multiple times is done multiple times in one LE3 per group of connected clients ❙ Reporting of jointly and severally liable borrowers is done by • Notification of the civil law partnership (GbR) and • Adding to the debt of the partners 08 July 2013 Page 24 Stefan Kadletz, B 422

Large Exposure Reporting Formats LE4 and LE5: The forms LE4 and LE5: 08 July 2013 Page 25 Stefan Kadletz, B 422

Large Exposure Reporting Format LE4: ❙ Use only for maturity breakdown of data in LE2 ❙ 10 largest loans to financial institutions ❙ 10 largest loans to non-supervised financial undertakings 08 July 2013 Page 26 Stefan Kadletz, B 422

Large Exposure Reporting Format LE5: ❙ Use only for maturity breakdown of data in LE3 ❙ Individual borrowers in groups of connected clients of financial institutions or non-supervised financial undertakings ❙ 10 largest loans to financial institutions ❙ 10 largest loans to non-supervised financial undertakings 08 July 2013 Page 27 Stefan Kadletz, B 422

Large Exposure Reporting Formats Deadlines: ❙ Reporting reference dates: 31 March, 30 June, 30 September, 31 December ❙ Submission no later than 30 business days after reference date: 12 May, 11 August, 11 November, 11 February ❙ if Saturday, Sunday or public holiday: Report on the next business day ❙ Same deadlines for individual institution and banking group reporting ❙ Reporting for the 1st reference date 31 March 2014: Extension of submission deadline to 30 May for individual institution reporting and 30 June for consolidated reporting 08 July 2013 Page 28 Stefan Kadletz, B 422

Large Exposure Reporting Formats Technical: ❙ Data exchange format XBRL ❙ Creation and publication of taxonomy by EBA ❙ Separate files for large exposure data and other COREP data ❙ By data centers: Structure via ZIP archive per lender ("ZIP-in-ZIP") ❙ Uniform banking supervisory submission mailbox in ExtraNet ❙ Data entry platform continues to be offered 08 July 2013 Page 29 Stefan Kadletz, B 422

Large Exposure Master Data ❙ Master data forms are subject to GroMiKV-E and are to become valid from 1 January 2014 ❙ Master data procedure for large exposures regulated in § 7 GroMikV-E ❙ STA: Use for new or to be changed borrower master data ❙ STAK: Use for new or to be changed master data of groups of connected clients (GvK) => The term borrower unit is only to be used for million credit reporting ❙ Excursus: The STA can be used for the notification of million credit relevant borrowers (advanced submission); the STAK remains reserved exclusively for large exposure; the annexes GbR and MKNE are only to be used in million credit reporting as well as the annex EA; Special case for data entry platform users: only continuous submission! ❙ The submission procedure changes => immediate continuous submission of large exposure relevant master data 8 July 2013 Page 30 Björn Wehlert

Large Exposure Master Data ❙ From 1 January 2014, Article 4(1)(39) CRR alone is decisive for the aggregation of borrowers into groups of connected clients in the large exposure regime ❙ In the future, no database-side linking of GvK and individual borrowers => Master data search engine is no longer a reference for the composition of GvK (Note: The functionality and availability of the master data search engine does not change due to this!) ❙ No separate number range is created for the large exposure relevant master data of GvKs ❙ Generally, the known naming conventions remain => The master data for GvKs must be prefixed with GK or RE, if a separate group must be created solely for large exposure purposes; generally, the group used for million credit purposes can also be used for large exposure (see below) ❙ The naming of GvKs is based on the top of the group (Controlling / Risk driver) => This means that the previously known groups (only control) continue to be used, regardless of whether the borrower composition is the same for large exposure and million credit 8 July 2013 Page 31 Björn Wehlert

Large Exposure Master Data ❙ New large exposure relevant groups must be reported if the group does not exist in the Bundesbank database ❙ The GvKs will thus generally be used across institutions (as before); possibly, an institution-specific scope will arise as with risk units ❙ Large exposure-related groups are to be formed, for example, in the case of rebuttals => There will be GvKs that are part of a borrower unit ❙ If different strands of borrowers are to be reported under a group top differently from million credit, the individual groups must be designated appropriately => • Million credit: Bank abc AG Frankfurt a. M. Group • Large exposure: Bank abc AG Frankfurt a. M. – Company xyz GmbH Hamburg – Group; Bank abc AG Frankfurt a. M. – Company def AG Kiel – Group, ... 8 July 2013 Page 32 Björn Wehlert

Large Exposure Master Data ❙ The aforementioned naming convention for GvKs applies in particular to the group of local authorities => According to Art. 4(1)(39), institutions have the option of how extensively they aggregate ❙ KNE explanations on the STA are only relevant for the simultaneous notification of a borrower for million credit reporting ❙ Although generally no explanation for the STAK notification is required, the institution must be able to justify the group formation if necessary => Questions may arise, for example, through the comparison of the submitted LE notifications 8 July 2013 Page 33 Björn Wehlert

Large Exposure Master Data Notification STA: ❙ The form STA (Part 1): 08 July 2013 Page 34 Björn Wehlert

Large Exposure Master Data Notification STA: ❙ The form STA (Part 2): 08 July 2013 Page 35 Björn Wehlert

Large Exposure Master Data Notification STA: ❙ The form STA (Part 3): 08 July 2013 Page 36 Björn Wehlert

Large Exposure Master Data Notification STAK: ❙ The form STAK (Part 1): 08 July 2013 Page 37 Björn Wehlert

Large Exposure Master Data Notification STAK: ❙ The form STAK (Part 2): 08 July 2013 Page 38 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: GbR (Civil Law Partnership) ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here) ❙ 1.1: Borrower "V" is credited with €5 million, borrower "Z" with €6 million and the "GbR V and Z" (joint and several liability) with €12 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: V with 17, Z with 18 and the GbR with €12 million ❙ 1.2: Borrower "V" is credited with €5 million, borrower "Z" with €6 million and the "GbR V and Z" (joint and several liability) with €8 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: V with 13 and Z with €14 million – the GbR itself is not to be reported, as it is below the reporting threshold 8 July 2013 Page 39 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: GbR ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here); the institution's examination results that borrowers "A", "A-GmbH" and the "GbR A and A-GmbH" form a group of connected clients ❙ 2.1: Borrower "A" is credited with €5 million, borrower "A-GmbH" with €6 million and the "GbR A and A-GmbH" (joint and several liability) with €3 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: GvK "Gk A Group" with €14 million ❙ LE 3: A with 8, A-GmbH with 9 and GbR A and A-GmbH with €3 million ❙ The sum of LE 3 is greater than in LE 2; the institution must ensure that the group debt is not overstated. 8 July 2013 Page 40 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: GbR ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here); the institution's examination results that borrowers "A", "A-GmbH" and the "GbR A and A-GmbH" form a group of connected clients ❙ 2.2: Borrower "A" is credited with €5 million, borrower "A-GmbH" with €6 million and the "GbR A and A-GmbH" (joint and several liability) with €11 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: GvK "Gk A Group" with €22 million ❙ LE 3: A with 16, A-GmbH with 17 and GbR A and A-GmbH with €11 million ❙ The sum of LE 3 is greater than in LE 2; the institution must ensure that the group debt is not overstated. 8 July 2013 Page 41 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: GbR ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here); the institution's examination results that borrowers "A" and "A-GmbH" form a group of connected clients (the GbR is not part of the group) ❙ 3.1: Borrower "A" is credited with €5 million, borrower "A-GmbH" with €6 million and the "GbR A and X" (joint and several liability) with €3 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: GvK "Gk A Group" with €14 million ❙ LE 3: A with 8, A-GmbH with €6 million 8 July 2013 Page 42 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: GbR ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here); the institution's examination results that borrowers "A" and "A-GmbH" form a group of connected clients (the GbR is not part of the group) ❙ 3.2: Borrower "A" is credited with €5 million, borrower "A-GmbH" with €6 million and the "GbR A and X" (joint and several liability) with €11 million. The GbR debt is fully allocated to both partners according to ITS. ❙ LE 2: GvK "Gk A Group" with 22, X with 11 and GbR A and X with €11 million ❙ LE 3: A with 16, A-GmbH with €6 million 8 July 2013 Page 43 Björn Wehlert

Large Exposure Case Studies ❙ Reporting Technology: Multiple ❙ Assumption: Large exposure reporting threshold is €10 million (other thresholds are not considered here); the institution's examination results that borrowers "A" and "A-GmbH" (Control) and "A" and "B" (economic interconnectedness) each form a group of connected clients ❙ Example: Borrower "A" is credited with €5 million, borrower "A-GmbH" with €6, B with €11 million. ❙ LE 2: GvK "Gk A Group" with 11, GvK "RE A Group" with €16 million ❙ LE 3: For Gk A Group: A with 5 and A-GmbH with €6 million, for RE A Group: A with 5 and B with €11 million ❙ In LE 3, A must be shown for each assigned group, in this case twice! 8 July 2013 Page 44 Björn Wehlert

Master Data Feedback - Content ❙ Information on master data and the associated borrower unit relationships + GbR relationships ❙ Master data of borrowers and borrower units / groups of connected clients ❙ from master data notifications including information on assigned Bundesbank identification numbers ❙ of the previous period (large exposure) or the current reporting period (million credit) ❙ Borrower unit relationships ❙ Display of membership in borrower units starting from the borrower ❙ No information on group composition for groups of connected clients ❙ GbR relationships ❙ Display of membership of GbR partners in a GbR starting from the GbR 08 July 2013 Page 45 Alexander Hain, B 422

Master Data Feedback - Format File Submitters ❙ Format XBRL [eXtensible Business Reporting Language] ❙ Publication of taxonomy took place on 29 June 2012 ❙ For data centers: Structure via ZIP archive per lender ("ZIP-in-ZIP") Data Entry Platform Users ❙ Format PDF (only information on new identification numbers) 08 July 2013 Page 46 Alexander Hain, B 422

Master Data Feedback - Provision ❙ Provision in ExtraNet for download ❙ Download possible with authorization "Pickup of feedback" Million Credit Reporting ❙ Provision in addition to the existing feedback files ❙ Long-term: Replacement of the group mirror file Large Exposure Reporting ❙ Only feedback file 08 July 2013 Page 47 Alexander Hain, B 422

Master Data Feedback - Provision Dates Large Exposure Reporting ❙ PDF identification number list no later than 25th business day after reference date ❙ Master data feedback no later than 25th business day after reference date Million Credit Reporting ❙ PDF identification number list no later than 10th business day after reference date ❙ Master data feedback approx. mid of the third month of the quarter after reference date as part of the normal feedback 08 July 2013 Page 48 Alexander Hain, B 422

Modernization of Million Credit Reporting ❙ Changes in the reporting of borrowers and borrower units ❙ Date: 1 January 2014 => first reporting date 31 March 2014 ❙ § 20(6) KWG no longer provides for a privileged borrower address in the future: Local authorities, KfW and others are subject to reporting obligations ❙ § 19(2) KWG will only apply to million credit reporting in the future ❙ Stronger standardization, alignment mostly with formal criteria => Previously known aggregation principles remain generally valid ❙ No rebuttal permitted ❙ Consequence: Existing borrower units may need to be adjusted ❙ Removal of the exemption regulation for local authorities => Borrower units must be created anew ❙ Justification: Different purpose of the two supervisory norms ❙ Reduction of the million credit reporting threshold ❙ § 14 in conjunction with § 64r(10) KWG - Date: 1 January 2015 => first reporting date 31 March 2015 ❙ Stock recording of master data of potential borrowers according to § 64r(10) KWG is possible from 1 January 2015 ❙ Bundesbank is taking preparatory measures to mitigate the expected increase in reporting volume, particularly with regard to master data notifications 10 January 2012 Page 49 Björn Wehlert

Modernization of Million Credit Reporting ❙ Expansion of the Credit Definition