Response to consultation paper on draft regulatory technical standards on the permanent and temporary uses of the IRB approach

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Q2: Do you agree with the proposed draft RTS regarding permanent partial use of the Standardised Approach (SA) for the exposures specified in Article 150(1)(a) and (b) of the CRR?

Proposed 8%-thresholds for ‘central governments and central banks’ and its rationale are in opposition to the criteria perceived from the perspective of modelling, e.g. if the entire exposure is to one counterparty (one central government) and it exceeds the level of 8% of the exposure value, it still fulfils both conditions provided in point (a) of the article 150(1) of the CRR. The materiality criterion does not provide ‘level playing field’ and may discriminate the actual risk profile among institutions, e.g. one institution from the example above and another institution with exposures to many (immaterial) central governments and central banks not exceeding 8% threshold. Since the rationale for implementing the 8% limit is based on possibility, that “a large number of immaterial counterparties may also give rise to a large total exposure in each of these exposure classes”, therefore the 8% limit should perhaps restrict only such cases.
Alternatively, current construction of article 2(1) of the RTS, which assumes fulfillment of all criteria (a) –(c), may be modified with respect to the rationale provided in the RTS.

Q3: Do you agree with the proposed draft RTS regarding permanent partial use of the SA for the exposures specified in Article 150(1)(c) of the CRR? Which of the two alternative proposals presented in the impact assessment section under ‘Technical options considered’ do you prefer?

The proposed draft RTS provides cumulative thresholds/limits, whereas no definition of the materiality is provided. Does this mean, that a single sub-portfolio excluded under Article 150(1)(c)of the CRR may be deemed immaterial as long as the threshold is not breached?
Point (b) of Article 3 of the RTS includes an error: instead of “the total risk-weighted exposure amount of all relevant exposures to which the institution currently applies the Standardised Approach is equal to or smaller than [8]% of the set of the relevant exposures referred to in Article 1(3)” should be: the total risk-weighted exposure amount of all relevant exposures to which the institution currently applies the Standardised Approach is equal to or smaller than [8]% of the total risk-weighted exposure amount of the set of the relevant exposures referred to in Article 1(3)”.
Proposal 1 seems more accurate, however may be more challenging for supervisors, as far as calculating the IRB capital requirements based on assumed parameters. The first proposal includes also a 15% threshold on PPU (on entire Article 150(1) of the CRR), what exceeds EBA's mandate provided by the Article 150(3) of the CRR.

Q4: Do you agree with the quantitative thresholds proposed in Articles 2(1), 3 and 4(2) of these draft RTS? If not, what thresholds do you consider more suitable?

Local regulations enabled so far exclusions up to 15% of RWA according to the SA in case of criterion in Article 3 of the RTS. The proposed thresholds may put pressure on both IRB institutions and institutions applying for IRB.
In comments to Question 1 the construction of 8% thresholds in Article 2(1) of the RTS was disapproved. However, if this comment is not taken into consideration in final RTS, then the proposed level of 8% (concerning the exposure value, not risk-weighted exposure amount) may seem too stringent for 'central governments and central banks' exposure class in case of some institutions.

Q5: Do you think that separate quantitative thresholds should apply for application of these draft RTS on an individual and on a consolidated basis? Which of the two alternative proposals presented in the impact assessment section under ‘Technical options considered’ do you prefer?

Thresholds should be consistent on individual and consolidated basis. However, application of thresholds on consolidated level should put no additional pressure on subsidiaries, i.e. not resulting from individual situation, but resulting from portfolio specificity on the group level. On the other hand, influence on consolidated values of local specifies and approval of IRB scope by competent authorities on local level should be understood and accepted by home supervisors.

Name of organisation

Raiffeisen Bank Polska