EBA publishes Opinion on waiver addressing potential concentration problems for covered bonds

The European Banking Authority (EBA) published today an Opinion addressed to the Danish FSA following its proposal of a partial waiver from the application of Article 129 (1)(c) of the Capital Requirements Regulation (CRR), which specifies the conditions for the eligibility of covered bonds in relation to risk weight preferential treatment. The EBA is of the opinion that given the significant potential concentration problems in Denmark, the application of a partial waiver is adequately justified.

 

For covered bonds to be eligible for risk weight preferential treatment, their total exposure to institutions that qualify for credit quality step 1 (CQS1) must not exceed 15% of the nominal amount of outstanding covered bonds of the issuing institution, as specified in Article 129(1)(c) of the CRR. 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. The partial waiver allows for exposures to institutions that qualify for CQS2 for up to 10% of the total exposure.

 

Following the Danish FSA notification of its intention to partially waive Article 129(1)(c) of the CRR, the EBA has given consideration to evidence provided to support the proposal, namely on the current classification of Danish credit institutions in relation to the CQSs assigned, the current composition of the Danish covered bond market, and the type and nature of exposures to credit institutions that covered bonds regularly assume.

 

On the basis of the evidence provided, the EBA is of the opinion that Denmark has a significant potential concentration problem stemming from the application of the CQS1 requirement and, therefore, such partial waiver is adequately justified.

 

The Danish FSA will issue an executive order on the use of the waiver, which will be published on the Danish FSA's homepage.

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.  

 

The Danish FSA will be monitoring the situation and on the basis of information that documents the concentration problem will assess, every second year, the need for the waiver to be in place. If the concentration problem is no longer significant, the measure will be repealed.