8.2 Determination of the level of the capital

For the purpose of determining the level of the capital, competent authorities should:

• (a) appropriately identify the risks (and related RWAs) based on the business plan reviewed in accordance with section 7.2.6, and estimate the own funds requirements (risk-based and leverage-based) for at least three years (i.e. the own funds necessary to cover full compliance with the prudential requirements throughout and at the end of the first three years, taking into account the expected cumulated losses for that time horizon);
• (b) add to the initial capital the expected cumulated losses for the first three years;
• (c) select the higher of (a) or (b)²⁸ .

Competent authorities should be satisfied that the estimate of the own funds requirements under letter a) of this paragraph²⁹ is the higher³⁰ amount deriving from the base case scenario or the severe but plausible stress scenario³¹ of the business plan revised in accordance with section 7.2.6. Competent authorities should ensure that the higher amount thus identified forms the basis for the calculation of the capital that the applicant credit institution is expected to have available at the moment of the authorisation as further specified in section 8.3. The portion of the capital at authorisation to be paid up before commencement of the activities is determined in accordance with paragraph 123.

²⁸ Figures 1, 2 and 3 reported in the Annex illustrate the following cases: a) Figure 1 provides an example of the case where own funds requirements are higher than the initial capital and cumulative yearly losses; b) Figure 2 provides an example of the case where the initial capital plus the cumulative yearly losses are higher than the estimated own funds requirements; c) Figure 3 provides an example of a change in the higher amount of initial capital and losses and own funds requirements in the course of the three years that are considered to determine the capital at authorisation.

²⁹ And the related expected cumulative losses used to determine the amount under letter 116(b) of this paragraph.

³⁰ In some cases it is the baseline scenario of the business plan rather than the adverse scenario (both properly challenged by the competent authority, if needed) that may lead to the determination of higher own funds requirements (due, for instance, to stronger business growth) and as a consequence to higher capital requirements as a whole (including the computation of the expected losses in the course of the three years of the planning time horizon). In that case, the highest estimated own funds requirements within the first three-year horizon and the accumulated losses for the first three years according to the baseline scenario would determine the required quantity of capital.

³¹ Consideration of the losses projected in the stress scenario should aim at ensuring an adequate level of resilience of the credit institution in the initial period of activity, also due to the fact that the P2R has not been determined yet.

Where the competent authority is the consolidated supervisor, it should assess the expected impact – based on the business plan reviewed in accordance with section 7.2.6 – of the newly authorised credit institution on the capital requirements at consolidated level. For this purpose the competent authority should rely on the analysis of the consolidation perimeter assessed in accordance with paragraph 33.

If an applicant belonging to a banking group applies for capital waivers in accordance with Articles 7 or 10 CRR, competent authorities may consider, within their discretionary powers under the aforementioned provisions, assessing the applicant’s eligibility for the application of the waiver in a strict and scrupulous manner, taking into account the particularities of the authorisation application.

Where the competent authority, in the exercise of its discretion, considers itself to be in a position to conduct a strict and scrupulous assessment and establishes that the relevant conditions set out in the CRR are satisfied and the waiver may be granted, and such a waiver is granted at the time of the authorisation, the capital at authorisation (and the related payment) should be determined consistently with paragraphs 116–117 taking the waiver into account.

Where the competent authority considers that the capital waiver cannot be granted at the time of the authorisation, the level of capital should be determined by the competent authority in accordance with the methodology laid down in paragraphs 116–117. In specific cases where the competent authority assesses that the waiver cannot be granted at the time of authorisation, but there are reasonable grounds to assess that it could be granted at a later stage, the competent authority may implement measures to mitigate the impact of the level of capital at authorisation.