2.4. A breakdown of minimum capital requirements by risk type

In accordance with article 92 of the CRR, the entities must at all times comply with the following capital requirements:

a. Ordinary Tier 1 capital ratio of 4.5%, obtained as the level of ordinary Tier 1 capital expressed as a percentage on the total amount of risk-weighted assets.

b. Ordinary Tier 1 capital ratio of 6%, obtained as the level of ordinary Tier 1 capital expressed as a percentage on the total amount of risk-weighted assets.

c. Total capital ratio of 8%, obtained as the capital expressed as a percentage on the total amount of risk-weighted assets.

Regardless of article 92 of the CRR, after the Supervisory Review and Evaluation Process (SREP), the minimum ordinary Tier 1 capital level should be 9.5%.

The total amount of capital requirements is made up mainly of the following items:

• Credit and dilution risk
  Credit risk is the possible loss assumed by an economic agent as a result of failure to comply with the contractual obligations of the counterparties with which it interacts. When calculating the risk-weighted exposures, the credit institutions may apply the standard method or the method based on internal ratings, when allowed by the competent authorities.
• Counterparty risk
  Counterparty risk-weighted exposures corresponding to repo and derivative operations (section 5.3. of the present document).
• Market risk
  Market risk arises from losses in the value of an asset associated with the fluctuation of its price on the market.
• Exchange-rate risk
  Exchange-rate risk arises when an economic agent places part of its assets in a currency or financial instrument denominated in a currency different from the one used by that agent for its day-to day transactions.
• Credit valuation adjustment risk
  The capital requirements with respect to the credit valuation adjustment risk resulting from OTC derivative instruments that are not credit derivatives recognized for the purpose of reducing the amount of credit risk-weighted exposures.
• Operational risk
  The capital requirements determined in accordance with title III of the CRR, with respect to operational risk.

In addition, as stated in the introductory section of the present document, Basel III, unlike the previous framework, introduces capital buffers as a complement to the minimum capital requirements. A transition period ending in 2019 has been established to facilitate the adaptation of financial institutions to the minimum capital requirements.

The third part of the CRR sets out the capital requirements, in accordance with the new Basel III framework, as well the techniques for calculating the different minimum regulatory capital ratios.

Below is the total capital requirements broken down by type of risk as of December 31, 2015 and December 31, 2014. The total amount for credit risk includes the positions in securitizations (standardized and advanced measurement approaches) and the holding in equities.

Table 7. Capital requirements by risk type

(Million euros)

Exposure categories and risk types	Capital Amount (*)(**) dic.-15	Capital Amount (*)(**) dic.-14	RWA's(1) dic.-15	RWA's(1) dic.-14
Credit risk	18,299	14,194	228,737	177,424
Central governments or central banks	2,814	2,388	35,174	29,850
Regional governments or local authorities	240	264	2,996	3,300
Public sector entities	108	107	1,349	1,338
Multilateral Development Banks	2	2	25	25
Institutions	458	211	5,730	2,638
Corporates	8,096	5,314	101,195	66,397
Retail	2,954	2,458	36,929	30,725
Secured by mortgages on immovable property	1,640	1,581	20,497	19,763
Exposures in default	376	436	4,706	5,450
Items associated with particularly high risk	11	12	143	150
Covered bonds	31	10	393	125
Short-term claims on institutions and corporate	58	34	727	425
Collective investments undertakings (CIU)	5	1	67	13
Other exposures	1,504	1,378	18,806	17,225
Securitized positions	84	85	1,049	1,063
Securitized positions	84	85	1,049	1,063
TOTAL CREDIT RISK BY THE STANDARDIZED APPROACH	18,383	14,279	229,787	178,487
Credit risk	7,827	7,589	97,837	94,858
Central governments or central banks	18	30	224	376
Institutions	866	994	10,826	12,425
Corporates	5,089	4,880	63,607	60,998
Of which: SME	999	887	12,487	11,084
Of which: Specialised lending	813	842	10,165	10,520
Of which: Other	3,276	3,151	40,954	39,394
Retail	1,854	1,685	23,180	21,059
Of which: Secured by real estate collateral, SME	35	26	441	321
Of which: Secured by real estate collateral, non-SME	958	808	11,970	10,099
Of which: Qualifying revolving retail	594	576	7,420	7,203
Of which: Other retail assets, SME	118	77	1,475	965
Of which: Other retail assets, non- SME	150	198	1,874	2,471
Equity	1,562	1,749	19,522	21,865
By method:			-
Of which: Simple Method	959	787	11,993	9,840
Of which: PD/LGD Method	498	833	6,230	10,417
Of which: Internal Models	104	129	1,299	1,609
By nature:			-
Of which: Exchange-traded equity instruments	1,133	822	14,157	10,280
Of which: Non-trading equity instruments in sufficiently diversified portfolios	429	927	5,365	11,585
Securitized positions	28	57	345	712
Securitized positions	28	57	345	712
TOTAL CREDIT RISK BY THE ADVANCED MEASUREMENT APPROACH	9,416	9,395	117,704	117,435
TOTAL ECC'S DEFAULT GUARANTEE FUND CONTRIBUTION	41	-	511	-
TOTAL CREDIT RISK	27,840	23,674	348,002	295,922
Standardized:	224	234	2,801	2,925
Of which: Price Risk from fixed-income positions	189	202	2,368	2,525
Of which: Price risk for securitizations	2	2	26	25
Of which: Correlation price risk	6	6	76	75
Of which: Price Risk from equity portfolios	22	24	271	300
Of which: Commodities risk	5	-	59	-
Advanced: Market Risk	748	712	9,355	8,900
TOTAL TRADING-BOOK ACTIVITY RISK	972	946	12,156	11,825
EXCHANGE RATE RISK (STANDARDIZED APPROACH)	320	732	4,003	9,150
RISK DUE TO CVA ADJUSTMENT	307	360	3,833	4,498
OPERATIONAL RISK	2,663	2,352	33,291	29,406
CAPITAL REQUIREMENTS	32,103	28,064	401,285	350,802

(1) Corresponding temporary Risk Weighted Assets (phased-in). (*) Calculated as 8% RWAs. (**) Under CET 1 requirements (9,5%) after the supervisory evaluation process (SREP), total requirements are 38.122 millons of euros.