FINMA Circular "Capital buffer and capital planning – banks"

III Computation of capital requirement for the extended

countercyclical buffer (Art. 44a para. 2 and 131a CAO)

[B3§143] The risk-weighted assets under the extended countercyclical buffer, which determines the capital charge, is computed by multiplying the weighted average buffer requirement by the bank’s total risk-weighted assets:

𝑅𝑊𝐴𝑗𝐴𝑍𝑃 𝑅𝑊𝐴 𝑔𝑒𝑠𝑎𝑚𝑡 (∑ 𝑋𝑗 ) 𝑅𝑊𝐴 𝐴𝑍𝑃 𝑗

where: 𝑹𝑾𝑨𝒈𝒆𝒔𝒂𝒎𝒕 represents the bank’s total risk-weighted assets under Art. 42 para. 2 CAO (subject to the floor as stipulated in FINMA Circular 17/7 “Credit risk – banks”, margin no. 476 and FINMA Circular 08/21 “Operational risk – banks”, margin no. 116).

Further information on the location of a credit exposure

[FAQ 3.1, 3.2] A bank should where possible determine the geographic location of a non- bank private sector credit exposure or credit risk according to where the ultimate risk lies, i.e. the jurisdiction of the guarantor, not the the jurisdiction in which the exposure was booked.

[FAQ 3.2] The jurisdiction of the immediate obligor and ultimate obligor are determined for the purposes of computing the countercyclical buffer on the basis of the definitions of the BIS international banking statistics.

[FAQ Annex] The procedure for identifying the location of the ultimate obligor is as follows:

Jurisdiction of ultimate obligor of credit exposure Borrower located in jurisdiction A No guarantor3 A Guarantor located in jurisdiction A A Borrower located in jurisdiction A Guarantor located in jurisdiction B B Borrower is a branch of a parent company B domiciled in jurisdiction B The borrower is domiciled in jurisdiction A and the The most reasonable operating guarantors are spread across several countries or solution for the bank or the policy of the guarantee/collateral cannot be assigned the BIS international banking exclusively to any one jurisdiction. statistics, if one exists

The guarantor may be the provider of the collateral or guarantee or the protection seller in a credit derivative.

Appendix

Determining risk-weighted assets for the extended countercyclical buffer

For derivative exposures with collateral: if the The most reasonable operating counterparty is located in country A and the solution for the bank or the policy of collateral in country B the BIS international banking statistics, if one exists Repo transaction with a counterparty in jurisdiction A A (irrespective of geographical location of the collateral risk) Securities lending and borrowing transactions and The most reasonable operating Lombard loans with a counterparty in jurisdiction A solution for the bank or the policy of the BIS international banking statistics, if one exists Securitisation exposures Based on the country of residence of the debtors of the underlying exposures (“look through” approach) If the debtors of the underlying exposures cannot be assigned to any one country, the bank will choose the most reasonable operating solution for the bank or use the policy of the BIS consolidated banking statistics, if one exists Specialised lending as defined by [B2§219–220] (“look through” approach) e.g. project finance: borrower in jurisdiction B A with project located in jurisdiction B Specialised lending in general Jurisdiction in which the profits from the lending are generated Collective investment vehicle located in jurisdiction A The bank holds debt instruments issued by Jurisdiction in which the investment such an investment vehicle vehicle (or its parent company/guarantor) is domiciled The bank holds shares or units in such an Allocated proportionately to the investment vehicle jurisdictions of the ultimate risk exposures in which the investment vehicle is invested (“look through” approach). Trading book exposures from jurisdiction A A [FAQ 4.3] If the capital charge is determined on a The risk-weighted equivalents of the portfolio basis and the portfolio comprises trading minimum capital requirements for book exposures from different countries the trading book are allocated to the (provisional treatment until the Basel Committee on constituent countries of the portfolio by computing the proportion of the

Appendix

Determining risk-weighted assets for the extended countercyclical buffer

Banking Supervision publishes a definitive portfolio’s total exposure at default solution). (EAD) that is due to the EAD from counterparties in each country. If a country accounts for a negative proportion of the portfolio’s total EAD (e.g. owing to short positions), a minimum allocation of 0 applies.

The jurisdiction of the immediate counterparty should only be used if the jurisdiction of the ultimate risk is impossible to determine on a reasonable effort basis.

IV Further issues

[FAQ 2.6] If authorities in member states of the Basel Committee on Banking Supervision implement sectoral buffer requirements limited to specific credit exposures or other macroprudential measures, these need not be taken into account in determining the weighted average of the extended countercyclical buffer.

[FAQ 2.1] Reciprocity is only mandatory for Basel Committee member jurisdictions. If non- member jurisdictions implement a countercyclical capital buffer, this need not be taken into account.

List of modifications

This Circular has been modified as follows:

These modifications were adopted on 5 July 2012 and will enter into force on 1 January 2013.

newly inserted margin nos. 20a – 20c

abrogated margin nos. 12 – 13 and

Moreover, references to the Capital Adequacy Ordinance (CAO; SR 952.03) have been adapted according to the version which will enter into force on 1 January 2013.

This modification will enter into force on 1 January 2013.

modified margin no.

These modifications were adopted on 20 June 2018 and will enter into force on 1 January 2019.

newly inserted margin nos. 20.1, 20.2, 20.3,

modified margin nos. 1, 3, 4, 5, 6, 9, 15, 16, 17, 24, 30, 34, 43,

abrogated margin nos. 10, 11, 14, 18, 19, 20, 20a, 20b, 20c, 47, 48,

other modifications change in title before margin nos. 10, 14, 20.1,

abrogation of title before margin nos. 18,

This modification was adopted on 31 October 2019 and will enter into force on 1 January 2020.

newly inserted margin no.

The references and terms were adjusted upon the entry into force of FinIA and FinSA on 1 January 2020.

The appendix to this Circular has been modified as follows: These modifications were adopted on 20 June 2018 and will enter into force on 1 January 2019.

abrogated appendix on the categorisation of institutions new appendix on determining risk-weighted assets for the extended