A. Methodology for identifying the systemically important credit institutions

The methodology employed by the National Bank of Romania (NBR), as a sectoral supervisory authority, in order to identify the systemically important credit institutions is harmonized with the provisions of the European Banking Authority's Guidelines on the criteria to determine the conditions of application of Article 131(3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs) , namely:

1. in the first stage , a score is calculated on the basis of the mandatory indicators recommended by the EBA Guidelines, at the highest level of consolidation, for the entities falling under the NBR’s jurisdiction, including subsidiaries of foreign banks in other Member States and third countries. The score thus calculated reflects the systemic importance of each entity;
2. in the second stage , the optional indicators provided by the EBA Guidelines are calculated. The optional indicators capture more thoroughly the links between credit institutions and other financial intermediaries, as well as the links with the real economy. The optional indicators reflect the specificities of the national banking sector.

In the first stage, selected criteria and indicators are used to reflect commonalities in the systemic character of credit institutions in all Member States, illustrating the general view of systemic risk sources, as follows:

Table 1 – Criteria and mandatory indicators provided for by the EBA Guidelines for assessing O-SIIs

Criterion	Indicators	Weight
Size	Total assets	25.00%
Importance (including substitutability /financial system infrastructure)	Value of domestic payment transactions	8.33%
	Private sector deposits from depositors in the EU	8.33%
	Private sector loans to recipients in the EU	8.33%
Complexity/cross-border activity	Value of OTC derivatives (notional)	8.33%
	Cross-jurisdictional liabilities	8.33%
	Cross-jurisdictional claims	8.33%
Interconnectedness	Intra-financial system liabilities	8.33%
	Intra-financial system assets	8.33%
	Debt securities outstanding	8.33%

In order to calculate the mandatory indicators, the harmonized definitions are used according the provisions of the EBA Guidelines, based on accounting and financial reports compiled according the implementing technical standard on an EU-wide common supervisory reporting framework for supervisory purposes, at the highest level of consolidation. In order to designate the credit institutions that are part of the Romanian banking sector as systemic, the threshold of 275 basis points is used, which ensures the homogeneity of this group of banks. All institutions which obtain a minimum score of 275 basis points are automatically designated as being systemic.

Given the differences between Member States in terms of size and characteristics of financial systems, the supervisory authorities may use optional indicators¹in order to capture the particularities of national banking sectors, in addition to the mandatory framework. The assessment performed by the national supervisors takes the form of an analysis of quantitative and qualitative factors that are specific to different Member States and, yet, have not been sufficiently captured by the cause-effect relationship defined by the mandatory framework. The criteria and optional indicators employed by the NBR, as well as the threshold from which credit institutions are designated as systemic in the second stage, are presented in Table no. 2.

Table 2 – Optional criteria/indicators used by the NBR in the second O-SII assessment stage and the minimum threshold at which institutions are designated as systemic.

Criterion	Indicators for assessing the criterion	Threshold at which institutions are designated as O-SIIs
Contribution made by the credit institution to financing real economy, calculated based on the volume of loans granted to non-financial companies and the substitutability of non-financial companies’ lending activity	The average weight of loans granted to non-financial corporations by the credit institution in total credit granted to non-financial corporations by the banking sector related to: (i) the market share of the credit institution in the financing of non-financial corporations, overall and by main sector group2 (ii) the role in the economy of loan-taking companies as illustrated by: types of loans granted (simple arithmetical average of cash flow loans and equipment loans), the gross value added, the number of employees, net exports, net imports.	2.75%
Contribution made by the credit institution to financial intermediation, calculated based on the volume of deposits taken from households and non-financial corporations	The arithmetic mean of the weights of deposits by non-financial corporations and households with the credit institution in total deposits by non-financial corporations and households in the banking sector.	2.75%
Presence of the credit institution on the interbank market and the assessment of the contagion effect	Asset market shares of credit institutions whose total capital ratio would fall below 8 percent, upon simulating the pass-through of the shock, by considering the direct exposures via the interbank market.	2.75%
Designating systemically important institutions within ReGIS payment system	Volume and share of transactions carried out by each credit institution in ReGIS payment system in total transactions.	2.75%
Vulnerability to contagion in the parent bank-subsidiary relationship from the common lender standpoint (the origin country of the capital)	The assessment is conducted based on the following three indicators: (i) the bank’s importance in sending a shock to the bank group by the origin country of the capital; (ii) the vulnerability of the other banks that are part of the same group to the shock sent by the failing bank (shock-transmitter); (iii) the importance of the common lender (the origin country of the capital) the failing bank is part of.	2.75%

B. Methodology for calibrating the buffer applicable to systemic banks (O-SII buffer)

The calibration methodology of the O-SII buffer considers the scores calculated for the credit institutions in the first stage of evaluation (consisting in determining the mandatory indicators recommended by the European Banking Authority), taking into account the characteristics of the national banking sector and the structure of the systemic bank group. The range of values related to the scores obtained by banks in the calculation of the mandatory indicators recommended by EBA is divided into six buckets with an equal value of 500 basis points, to which the values of the O-SII buffer are assigned in ascending order depending on the systemic importance of the institutions, in percentage steps equal to 0.5 percentage points (from 0.5% to 3%), as follows:

Buckets	Limits (min, max)(basis points)	O-SII buffer (% of total risk exposure amount)
1	275 – 500	0.5%
2	501 – 1000	1%
3	1001 – 1500	1.5%
4	1501- 2000	2%
5	2001 – 2500	2.5%
6	More than 2500	3%

N.B. - the first interval has as minimum limit the score of 275 basis points, from which the banks are automatically designated as systemic, according to the methodology employed by the NBR, as a sectoral supervisory authority. If a systemic bank is identified through the additional indicators, but its score obtained in the calculation of the mandatory indicators is below the threshold of 275 basis points, then the respective institution will fall within the first range.

The setting of intervals used in the calibration was based by the following principles: (i) ensuring a proportional length of the intervals, (ii) symmetrical division of the distribution of historical scores and (iii) setting consistent capital requirements between the two applicable regulatory frameworks, i.e. CRD IV and CRD V.

The calibration methodology ensures a high degree of predictability in the process of capital planning for the systemic credit institutions. The design of intervals took into account the historical data represented by the scores obtained by banks. Given that the historical distribution contains more values at the bottom than at the top, the 30-30-30-10 division implies a more equitable correlation between the score obtained and the level of the attributable O-SII buffer. The presence of two intervals having values higher than the maximum historic score ensures that, in the context in which the process of concentration of the Romanian banking sector is expected to continue in the future, institutions that will increase their systemic footprint will have to comply with higher capital requirements.

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¹ The optional indicators must be selected from the list reffered to in Annex No.2 – Optional indocators in the European Banking Authority's Guidelines on the criteria to determine the conditions of application of Article 131(3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs)

² The classification by the mentioned economic sectors is based on NACE (National Classification of Economic Activities) Rev. 2: a. Agriculture, forestry and fishing (NACE code A); b. Mining and quarrying and manufacturing (NACE codes B and C); c. Electricity, gas, steam and air conditioning supply; Water supply; sewerage, waste management and remediation activities; Transportation and storage; Hotels and restaurants; Information and communication; Professional, scientific and technical activities; Administrative and support service activities; Public administration and defence; compulsory social security; Education; Human health and social work activities; Arts, entertainment and recreation; Other service activities; Activities of households as employers; undifferentiated goods- and services-producing activities of households for own use; Activities of extraterritorial organisations and bodies (NACE codes D, E, H, I, J, M, N, O, P, Q, R, S,T and U); d. Real estate activities; Construction (NACE codes L and F); e. Wholesale and retail trade; repair of motor vehicles and motorcycles (NACE code G).

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