EBA finds Swedish waiver on covered bonds justified

05 March 2015

The European Banking Authority (EBA) announced today that significant potential concentration problems in Sweden justify the application of a partial waiver on covered bonds. The opinion is addressed to the Swedish Financial Supervisory Authority (Finansinspektionen) and follows their notification that they intend to implement a partial waiver on the eligibility of covered bonds in relation to risk weight preferential treatment. The verdict comes after a review of the Swedish covered bonds market and concerns the application of Article 129 (1) of the Capital Requirements Regulation (CRR).
 
The application of the Credit Quality Step (CQS) 1 requirement may create a potential significant concentration problem in Sweden. This is what the EBA said in its opinion sent today to the Scandinavian supervisor, Finansinspektionen, which had previously notified their intention to implement a partial waiver on the eligibility of covered bonds in relation to risk weight preferential treatment.
 
According to current EU legislation, for covered bonds to be eligible for risk weight preferential treatment, their total exposure to institutions that qualify for CQS 1 must not exceed 15% of the nominal amount of outstanding covered bonds of the issuing institution. This requirement may be partly waived by a Competent Authority, after consulting the EBA, if significant potential concentration problems in the Member States concerned can be documented.
 
On the basis of the evidence provided by the Swedish Financial Supervisory Authority, the EBA concluded that a partial waiver is adequately justified. The partial waiver will allow for exposures to institutions that qualify for CQS 2 and will be applicable for up to 10% of the total exposure. To implement this waiver the Swedish Financial Supervisory Authority, which commits to reassess the need for continuing the use of the partial waiver on an annual basis, will amend its regulatory code. If the concentration problem is no longer significant, the measure will be repealed.
 
The evidence submitted by Sweden, and reviewed by the EBA, focused on the current classification of Swedish credit institutions in relation to the CQSs assigned, as well as the current composition of the Swedish covered bond market, and the type and nature of exposures to credit institutions that covered bonds regularly assume.

Legal basis and next steps

The EBA's competence to deliver the Opinion is based on Article 29(1)(a) of Regulation (EU) No 1093/2010. In accordance with Article 14(5) of the Rules of Procedure of the EBA Board of Supervisors, the Opinion has been adopted.
 

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