Commission Delegated Decision (EU, Euratom) 2021/135 of 12 November 2020 supplementing Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council with detailed conditions for the calculation of the effective provisioning rate of the common provisioning fund

• CELEX: Delegated Decision (EU, Euratom) 2021/135
• Articles: 4

Article 1

1.   The Commission shall provide the financial manager with the following information:

(a)

forecasts of inflows and outflows for the relevant compartments of the common provisioning fund for the relevant period;

(b)

other relevant information necessary to determine the adequacy of the provisioning, based on the methodology for the effective provisioning rate calculation.

2.   The financial manager shall calculate the effective provisioning rate applicable for the relevant annual period in conformity with the budgetary procedure, using the information provided in accordance with paragraph 1.

However, by derogation to the first subparagraph as regards the conformity with the budgetary procedure, the financial manager shall calculate the effective provisioning rate applicable for the first annual period using available and relevant information as soon as possible.

3.   The financial manager shall calculate the effective provisioning rate using the methodology set out in the Annex. The financial manager shall accompany the calculation of the effective provisioning rate with an assessment of the market conditions and with any other relevant assumptions, as set out in the methodology, used in the calculation.

Article 2

1.   The financial manager may set the effective provisioning rate at 100 %, in order to fulfil the requirement of Article 213(1) of the Financial Regulation, to ensure that the level of protection against the financial liabilities of the Union is equivalent to the level that would be provided by the respective provisioning rates if the resources were held and managed separately.

2.   Paragraph 1 shall apply only when the information related to a significant contributing instrument in the common provisioning fund, essential to calculate the effective provisioning rate in a prudent manner, is not fully available.

Article 3

This Decision shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .

It shall apply as from the date of application of the post-2020 multiannual financial framework.

Schedules & Appendices

ANNEX

ANNEX

1.

The effective provisioning rate of the common provisioning fund shall be calculated taking into account the amount of expected and unexpected losses for each contributing instrument and the diversification ratio, which accounts for the correlation between the contributing instruments’ losses, as set out in the following formula:

Where

EPR

t – the effective provisioning rate, expressed as a percentage of the amount of the resources foreseen for the payment of the guarantee calls for the year t , if the provisioning for contributing instruments were held and managed separately;

EL

i,t – the expected loss for the compartment i , for the year t , determined by the authorising services for the relevant compartment and representing the amount of resources that is necessary to meet expected guarantee calls for the year t ;

UL

i,t – the unexpected loss for the compartment i , for the year t , determined by the authorising services for the relevant compartment and representing the volatility (standard deviation) of the expected loss for the compartment;

i,j – the compartment

;

t – the year

, where T represents the total lifetime of the relevant compartment;

x

t – the adjustment coefficient, expressed as percentage of UL

i,t for the year t , reflecting the margin necessary to cover the short term volatility of the loss estimates, providing additional protection against insufficient liquidity;

ρ

i,j – the correlation matrix between the individual compartments’ losses over the lifetime of the contributing instruments;

DR – the diversification ratio, reflecting the difference between the sum of the lifetime unexpected losses of all the contributing instruments in the denominator and the lifetime joint unexpected losses for all the compartments, calculated as follows:

2.

The diversification ratio shall be calculated by the financial manager for the year t , based on the inputs from the authorising services and correlation matrix estimates.

3.

The correlation matrix between the compartments shall be determined by the financial manager, using historical data when available, proxies for the compartments using publicly available data (such as bond, equity indices) that represent the geographic or sectoral coverage for the respective compartments. The correlation matrix may be adjusted by the financial manager to take into the account market conditions and other relevant factors.