EBA agrees with the European Commission’s amendments to standards on risk weights to specialised lending exposures

The European Banking Authority (EBA) published today an Opinion in response to the European Commission’s intention to amend the EBA’s final draft regulatory technical standards (RTS) on assigning risk weights to specialised lending exposures before endorsing them. The EBA is of the view that the proposed changes, despite their substantive nature, do not alter the draft RTS in a significant manner, as they still maintain a good balance between the flexibility and risk sensitivity required for the IRB approach and the need for a harmonised regulatory framework.

The EBA’s Opinion identifies three substantive changes introduced by European Commission. The first two changes allow a certain flexibility in relation to the incorporation of risk drivers. In particular, the first change introduces the possibility for institutions to consider a sub-factor or a sub-factor component as irrelevant a certain type of specialised lending exposures. The second change allows institutions to consider additional relevant information (an ‘additional risk driver’) for a type of specialised lending exposures, jointly with the sub-factor which most closely corresponds to that additional risk driver. The EBA is of the view that the flexibilities introduced through these two substantive changes only marginally reduce the harmonisation across institutions since they should be applied consistently for the same type of exposure, and duly justified and documented.

The third substantive change simplifies the rules on overlapping criteria at the level of the sub-factor or of the sub-factor components. The EBA is of the view that this change does not jeopardise significantly the risk sensitivity of the approach and has the merit of simplifying the RTS.

Legal basis and background

The EBA has delivered this Opinion in accordance with Article 10(1), subparagraph 6, of Regulation (EU) No 1093/2010, which requires the EBA to submit its response in the form of an opinion to amendments proposed by the European Commission.

The EBA had submitted its final draft RTS to the European Commission on 13 June 2016.