The EBA finds Italian waiver for covered bonds justified

The European Banking Authority (EBA) today published an Opinion addressed to the Bank of Italy following the Competent Authority's notification of its decision to introduce a partial waiver 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 treatments. Given the significant potential concentration problem in Italy, the EBA is of the opinion that the application of a partial waiver is adequately justified.

The EBA has assessed the evidence provided by the Bank of Italy to support the measure, namely the current classification of Italian credit institutions in relation to the credit quality steps (CQSs) assigned, the current composition of the Italian 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 Italy has a significant potential concentration problem stemming from the application of the CQS1-CQS2 requirement and, therefore, the partial waiver is adequately justified.

Legal basis, background 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.

Article 129(1)(c) of the CRR specifies that covered bonds eligible for risk weight preferential treatment can be collateralised by exposures to credit institutions that qualify for CQS1 and CQS 2). 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 credit quality step 3 (CQS3) in the form of derivatives to be included in the cover assets.

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 If the concentration problem is no longer significant, the measure will be repealed.