Consultation on amending the Regulation on Specific Provisions CRD and CRR in connection with the application of revaluation limits for covered bonds

Bestaande naam: Subject / Optionele_Titel
80-051-1
| DNB UNRESTRICTED |
De Nederlandsche Bank N.V.,
After consultation;
Having regard to Article 129, third paragraph, of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms; Having regard to Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and public supervision of covered bonds, amending Directives 2009/65/EC and 2014/59/EU; Decides:

ARTICLE I
The Regulation on Specific Provisions CRD and CRR 2019 is amended as follows:
A
After Article 3:8, a new article is inserted, reading:
Article 3:9. - Application of supervisory discretion under the CRR
A bank as referred to in Article 3:33a, first paragraph, of the Financial Supervision Act (Wft) may value real estate pledged as security for covered bonds at or below market value or at the mortgage value of that real estate, without the need to apply the caps laid down in Article 229, first paragraph, point (e), of the CRR.

ARTICLE II
This regulation enters into force on the day after the date of issue of the Staatscourant in which it is published.
This regulation will be published in the Staatscourant together with the explanatory memorandum.
Amsterdam, [date]
De Nederlandsche Bank N.V.,
[name of director]
Director
Consultation Version
Regulation of De Nederlandsche Bank N.V. of [DATE] amending the Regulation on Specific Provisions CRD and CRR in connection with the application of revaluation limits for covered bonds

80-051-2
| DNB UNRESTRICTED |
EXPLANATORY MEMORANDUM
The rules for the valuation of collateral assets have been revised in Regulation (EU) 2024/1623 (CRR3)1. According to Article 229 of Regulation (EU) No 575/2013 (CRR)2, the principle of valuing real estate based on market value and/or mortgage value is replaced or corrected by a new prudent valuation method, known as the 'real estate value', introduced by global agreements on strengthening bank capital positions (the so-called Basel 3 agreement). For the valuation of collateral assets in the covered bond pool based on the Covered Bond Directive (CBD)3, market valuation and mortgage valuation (if applicable in the relevant Member State) remain permitted.4 Pursuant to Article 40h, second paragraph, of the Decision on Prudential Rules Wft, physical collateral assets must be valued at or below market value or mortgage value. Banks with their registered office in the Netherlands that issue covered bonds are thus currently not required to switch to the real estate valuation method for the valuation of collateral assets in the covered bond pool of covered bonds. In addition to new requirements for the valuation of collateral assets, Article 229, first paragraph, point (e), of the CRR also introduces caps regarding the revaluation of real estate. These provide that the value of real estate may no longer exceed the average value measured for that real estate or for comparable real estate over the last six years for non-commercial real estate, or eight years for commercial real estate, or the value at initiation, if this is higher. The rationale behind these limits is to limit the cyclical effects on the valuation of real estate as collateral assets and to make the equity requirements for mortgage loans more stable (recital 19 of CRR3). These revaluation limits apply to real estate valuation, market valuation, or mortgage valuation for collateral assets (see reference in footnote 3). However, Article 129, third paragraph, of the CRR provides the competent authorities designated under Article 18, second paragraph, of the CBD with the possibility to allow that the real estate is valued at or below market value or, in Member States that have laid down strict criteria in statutory or regulatory provisions for the calculation of mortgage value, at the mortgage value of that real estate, without the need to apply the caps laid down in Article 229, first paragraph, point (e), of the CRR. With this regulation, DNB uses this discretion to grant an exemption from the application of these revaluation limits when using the market valuation method or the mortgage valuation method for the revaluation of collateral assets in the covered bond pool of covered bonds based on the CBD.

1 Regulation (EU) 2024/1623 of the European Parliament and of the Council of 31 May 2024 amending Regulation (EU) No 575/2013 as regards requirements on credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor. 2 Regulation No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms. 3 Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and public supervision of covered bonds, amending Directives 2009/65/EC and 2014/59/EU. 4 As explained on page 148 of the advisory report of the European Banking Authority (EBA) on the functioning of the European covered bond framework. See: https://www.eba.europa.eu/publications-and-media/press-releases/eba-advises-eu-commission-review-eu-covered-bond-framework.