EBA publishes final draft technical standards specifying how to identify the appropriate risk weights and conditions when assessing minimum LGD values for exposures secured by immovable property

The European Banking Authority (EBA) published today its final draft Regulatory Technical Standards (RTS) specifying the types of factors and conditions to be considered for the assessment of the appropriateness of risk weights and of minimum loss given default (LGD) values. These final draft RTS will support relevant authorities across EU Member States in carrying out their periodical assessments by striking the right balance between ensuring coherence and harmonisation of their assessments and preserving the necessary flexibility.

In particular, the final draft RTS provide technical specifications on the following aspects:

• For those institutions applying the standardised approach (SA), the key elements for the assessment of risk weighs are the loss experience and the loss expectation relating to exposures secured by immovable property within the respective Member State. The final draft RTS specify the types of factors that authorities should consider during the risk weight assessment on the basis of the loss experience of exposures secured by immovable property and forward-looking immovable property market developments.
• For those institutions applying the internal ratings-based (IRB) approach to retail exposures secured by residential or commercial immovable property, the final draft RTS clarify the conditions to be considered when assessing the appropriateness of minimum LGD values. In their assessments, relevant authorities should consider whether minimum LGD values cover the sources of systemic risks beyond economic downturn considerations and idiosyncratic risks.

Legal basis 

The final draft RTS have been developed according to Articles 124 (4) and 164 (8) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to develop, in close cooperation with the European Systemic Risk Board (ESRB), draft RTS to specify the types of factors to be considered for the assessment of the appropriateness of the risk weights referred to in the first subparagraph of paragraph 2 of Article 124 of the Capital Requirements Regulation (CRR); and the conditions that the authority designated by the Member State shall take into account when assessing the appropriateness of minimum LGD values as part of the assessment referred to in paragraph 6 of Article 164 CRR. Given the similar nature of the mandates laid down in Articles 124 (4) and 164 (8) of the CRR, these final draft RTS deliver on both mandates.