1. Does the firm size adjustment for SMEs in the banking book also apply to SME exposures in the trading book?

Answer: Since this is unlikely to be a material issue, for purposes of QIS, the firm size adjustment will be ignored in the trading book (according to the Technical Guidance, however, trading book exposures will be eligible for application of this adjustment, as it should not matter in which book the credit exposure resides).

2. Should the turnover criterion of € 50 million for determining whether a corporate is an SME be based on the latest turnover or the average turnover of the past three years?

Answer: For purposes of QIS, specifying more detailed regulation is left to the national supervisor.

3. If a bank lacks the turnover data necessary to apply the firm size adjustment, can assumptions be made?

Answer: Yes, for QIS purposes a bank that lacks the relevant data should do this. Without making such assumptions its QIS-results could be seriously biased.

4. May we apply the firm size adjustment to exposures to counterparties like special purpose vehicles, managed funds and (high net-worth) individuals that are managed as corporates?

Answer: For QIS purposes, the firm size adjustment applies to corporate borrowers; it does not apply to sovereign, interbank or specialised lending exposures (including specialised lending exposures which may be risk weighted using the corporate risk weighting function-refer QIS 3 Instructions, paragraph 13.14).

Within the corporate portfolio, while it is not intended for the firm size adjustment to be applied to non-bank financial entities (such as insurance companies, pension funds and other managed funds), there is room for discretion with regard to the treatment of exposures to individuals managed as corporates. In the latter case, it may be difficult for banks to determine an appropriate turnover figure; however, the Technical Guidance (paragraph 237) indicates that, at national discretion, total assets may be substituted for total sales when total sales is not a meaningful indicator of firm size.

5. Some of my banks are able to generate more detailed data on the size correction than can be inputted in the templates. Would the Committee appreciate us adding columns to the size correction part of the SME-templates in order to give a more granular picture of the revenues of the counterparties involved?

Answer: Banks should not add columns to the PD/size matrix. As you can see in the templates the cells on top of this matrix are white in order to indicate that they may not be modified. Adding columns would cause problems since we depend upon the prescribed categories for further analysis of the data submitted by your banks. Consistent categorisation is necessary in order to be able to aggregate the results of individual banks. More detailed data can be presented in the 'Notes' section of the templates.

6. May we apply the firm-size adjustment calculated based on total sales of € 5 million to exposures to individuals that do not meet the retail definition under the IRB, when it is difficult for banks to determine an appropriate turnover figure (or an alternative total assets figure?)

Answer: Yes. For QIS 3 purposes, such an assumption is acceptable. (Refer also to FAQ N.3)

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