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  1. Home
  2. Single Rulebook Q&A
  3. 2021_6231 Exemption of promotional loans from the leverage ratio requirement
Question ID
2021_6231
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Leverage ratio
Article
429a
Paragraph
1
Subparagraph
e
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Name of institution / submitter
Romain Rard; Gide Loyrette Nouel
Country of incorporation / residence
BELGIUM
Type of submitter
Law firm
Subject matter
Exemption of promotional loans from the leverage ratio requirement
Question

Is the eligibility to the exemption for passing-through promotional loans to be assessed based on the non-competitive and the not-for-profit nature of the promotional loans granted (as defined under Article 429a(3) CRR) and the recipient of the promotional loan?

 

In other words, is the leverage ratio exemption under Article 429a(1)(e) CRR applicable to promotional loans irrespective of how the latter are match-funded? 

Background on the question

Article 429a of Regulation (EU) No 575/2013 (CRR), - as modified by Regulation (EU) 2019/876 - establishes a list of exposures which are excluded from the total exposure measure for the purpose of the calculation of the leverage ratio.

According to subparagraph (1) (e), credit institutions which are not public development credit institutions may exclude "the parts of exposures arising from passing-through promotional loans to other credit institutions". 

 

Recital 11 of Regulation (EU) 2019/876 states that the exemptions to the leverage ratio aim at avoiding a disproportionate impact of a 3 % leverage ratio requirement on certain business models, and sub-paragraphs (d) and (e) aim at exempting promotional loans from the leverage ratio requirement.  

 

Promotional loans are clearly defined under Article 429a(3)  based on criteria of non-competitiveness, not-for-profit basis, and promotion of public policy objectives. This definition encompasses the loans granted, either directly or through an intermediary credit institution, by a public development credit institution or by another entity, subject to the latter being set up by the central government to promote public policy objectives. 

 

On the other hand, the modalities of the pass-through of the promotional loans are not defined or prescribed under the Leverage ratio provisions of the CRR.

 

As acknowledged by the EBA, the exemption can apply to promotional loans of various varieties, match-funded promotional loans being recognised by the EBA as a modality of pass-through. 

 

Should any further distinction be made in the application of Article 429a(1)(e) CRR, notably based on how the promotional loans are match-funded, first it would imply that additional requirements are added to the text of CRR; and second, it would result in a discriminatory treatment of promotional loans and of the granting credit institution, in breach of the EU Treaties and the case law of the European Court of Justice.  

 

Applying the leverage ratio to match-funded promotional loans would have an obvious negative impact across the Banking Union: the cost of the leverage ratio would make it economically impossible for non-public entities and credit institutions to grant promotional loans and would disproportionately impact their promotional loan activities. The impact would be particularly disproportionate for credit institutions which sole activity consists of promotional loans.  Such a situation would seem to be precisely the opposite of the objective pursued by the EU co-legislators, and could partly make the definition of promotional loans inoperable.  

 

Last, we are fully aware of Q&A 5811, which is pending at the time of the submission of the present Q&A, but it does not address the additional background elements referred to here, which deserve to be taken into account so as to contribute to the objectives of the EBA Q&A tool.nt so as to contribute to the objectives of the EBA Q&A tool.

Submission date
06/10/2021
Rejected publishing date
29/04/2022
Rationale for rejection

This question has been rejected because the matter it refers to has been answered in Q&A 5811.

Status
Rejected question

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