117. Institutions should consider whether the value of repossession adequately reflects the value …

Institutions should consider whether the value of repossession adequately reflects the value of the repossessed collateral, consistently with any established internal requirements for collateral management, legal certainty and risk management. Where the collateral repossessed meets the criteria for high quality liquid assets at Level 1, as defined in Article 10 of Commission Delegated Regulation (EU) 2015/61, institutions may take into account directly as a realised recovery the market value of the collateral at the time of the repossession. In all other cases institutions should apply an appropriate haircut to the value of repossession and include in the calculation of economic loss a recovery in the amount of the value of repossession after applying the appropriate haircut. Institutions should estimate this haircut taking into account all of the following conditions:

• (a) the haircut should reflect possible errors in the valuation of the collateral at the moment of repossession taking into account the type of the valuation available at the moment of repossession, the date it was performed and the liquidity of the market for this type of asset;
• (b) the haircut should be estimated with the assumption that the institution intends to sell the repossessed collateral to an independent third party and should reflect the potential price that could be achieved from such sale, the costs of the sale and the discounting effect for the period from the sale to the moment of repossession taking into account the liquidity of the market for this type of assets;
• (c) where there are observations available regarding the repossessions and subsequent sales of similar types of collaterals the estimation of the haircut should be based on these observations and should be regularly backtested; for this purpose institutions should take into account all of the following:
• (i) the difference between the value of repossession and the sale price, especially where there were no significant changes in market and economic conditions between the moment of the repossession and the moment of the sale;
• (ii) any income and costs related to this asset that were observed between the date of repossession and the moment of the sale;
• (iii) discounting effects;
• (iv) whether the institution repossessed the collateral with the intention of immediate sale or whether another strategy was adopted.
• (d) where historical observations regarding the repossessions and subsequent sales of similar types of collaterals are not available the estimation of the haircut should be based on a case-by-case assessment, including the analysis of the current market and economic conditions;
• (e) the fewer data an institution has on previous repossessions and the less liquid the market for the given type of assets is, the more uncertainty is attached to the resulting estimates, which should be adequately reflected in the MoC in accordance with section 4.4.3.

1. Forbhreathnú

1.1 Tagairtí

• Article 10 Level 1 assets

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

• EBA - Published by the European Banking Authority at https://www.eba.europa.eu/