QIS 3 FAQ: D. National Discretion

1. In many cases, host-country decisions on national discretion items will affect the appropriate capital treatment to be applied to certain exposures in banks' portfolios. How should these exposures be treated in QIS 3?

Answer: For QIS purposes, banks should apply the national discretions provided by their home supervisor across all of their exposures (i.e. host-country decisions relating to national discretion items should not impact on banks' responses to the QIS questionnaire). Refer to paragraph 2.2 of the QIS Instructions document.

2. On the issue of rollout, what is the permissible level of flexibility with respect to the all-or-nothing approach (i.e. in completing the QIS to what extent can banks opt to use the standardised approach for certain 'immaterial' subsidiaries/portfolios, including in other jurisdictions)?

Answer: The concept of rollout does not apply to QIS. In completing the QIS, banks should not mix estimates based on the standardised and IRB approaches. To the extent possible, banks should try to apply the IRB approach to their entire book, even if this means that estimates for some blocks of business will not be up to the standards that will be expected when IRB is ultimately implemented. Banks may use estimates to provide PD distributions to give more complete calculations for QIS. Where this is not possible, the relevant exposures should be excluded from the QIS analysis (though the existence of such exposures should be reported in the relevant sections of the 'Data' worksheet).

3. Could you please elaborate on the meaning of national discretion items 21, 22, and 44?

Answer: Items 21 and 22 refer to the maturity adjustment under IRB. Within IRB it is possible to use either an assumed average maturity of 2.5 years (the so called implicit maturity adjustment), or to use the actual maturity of an exposure (the explicit maturity adjustment) following the criteria prescribed in the Technical Guidance. Whether banks should use an explicit or an implicit maturity correction extent depends on the national discretion exercised by their supervisor.

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      Under advanced IRB, banks application of an explicit maturity adjustment is mandatory for all exposures with the following exception: your national supervisor may decide (item 44) that exposures to domestic firms with a turnover of less than € 500 million must be exempted from the explicit maturity adjustment and that to such exposures an implicit maturity assumption of 2.5 years must be applied.

      Under foundation IRB supervisors will prescribe whether banks should use the implicit 2.5 years assumption, or the explicit adjustment. In any case, banks must apply the correction consistently, i.e. they must stick to either the explicit or the implicit adjustment for all exposures.

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