Spread risk on bonds and loans

1. The capital requirement for spread risk on bonds and loans SCR bonds shall be equal to the loss in the basic own funds that would result from an instantaneous relative decrease of stress i in the value of each bond or loan i other than mortgage loans that meet the requirements in Article 191, including bank deposits other than cash at bank referred to in Article 189(2)(b).

2. The risk factor stress i shall depend on the modified duration of the bond or loan i denominated in years (dur i ). dur i shall never be lower than 1. For variable interest rate bonds or loans, dur i shall be equivalent to the modified duration of a fixed interest rate bond or loan of the same maturity and with coupon payments equal to the forward interest rate.

3. Bonds or loans for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress i depending on the credit quality step and the modified duration dur i of the bond or loan i according to the following table (see here for the table).

4. Bonds and loans for which a credit assessment by a nominated ECAI is not available and for which debtors have not posted collateral that meets the criteria set out in Article 214 shall be assigned a risk factor stress i depending on the duration dur i of the bond or loan i according to the following table (see here for the table).

5. Bonds and loans for which a credit assessment by a nominated ECAI is not available and for which debtors have posted collateral, where the collateral of those bonds and loans meet the criteria set out in Article 214, shall be assigned a risk factor stressi according to the following:

(a) where the risk-adjusted value of collateral is higher than or equal to the value of the bond or loan i, stress i shall be equal to half of the risk factor that would be determined in accordance with paragraph 4;

(b) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with paragraph 4 would result in a value of the bond or loan i that is lower than the risk-adjusted value of the collateral, stress i shall be equal to the average of the following:

(i) the risk factor determined in accordance with paragraph 4;

(ii) the difference between the value of the bond or loan i and the risk-adjusted value of the collateral, divided by the value of the bond or loan i;

(c) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with paragraph 4 would result in a value of the bond or loan i that is higher than or equal to the risk-adjusted value of the collateral, stressi shall be determined in accordance with paragraph 4.

The risk-adjusted value of the collateral shall be calculated in accordance with Articles 112, 197, 198.

6. The impact of the instantaneous decrease in the value of participations, as referred to in Article 92(2) of Directive 2009/138/EC, in financial and credit institutions shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation.