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List of Q&A's

Classification of exposures for which an IRB bank uses the standardised approach, into IRB exposure classes (Article 147 CRR)

Is there any regulation stipulating that for exposures where an IRB bank uses the standardised approach, these "standardised" exposures have to be classified into exposure classes valid for the standardised approach (Article 112 Regulation (EU) No 575/2013 (CRR)).

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2016_2559
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/06/2016

Correct application of credit conversion factors in relation to credit substitutes and shipping guarantees

According to Annex I Classification of off-balance sheet items:a) Paragraph 1. (a) guarantees having the character of credit substitutes are guarantees for the good payment of credit facilities. These guarantees bear full risk, therefore CCF of 100% is applied as stated in Article 111. Could you provide more examples or a definition of credit substitutes?b) Paragraph 2. (b). (i) shipping guarantees: could guarantees for payment of delivered goods and services be considered shipping guarantees?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2543
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 09/12/2016

Risk weight for exposures to central-government-risk Public Sector Entities (PSEs) denominated and funded in domestic currency

May exposures to PSEs established in a Member State, whose level of risk in the opinion of the competent authority of the Member State in question does not differ from the level of risk of the central government, be assigned a risk weight of 0% in accordance with Article 114(4) of CRR if they are denominated and funded in domestic currency?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2484
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 15/07/2016

Procedury monitorowania ochrony kredytowej / EN: Credit protection monitoring procedures

Czy aby w procesie szacowania wymogu kapitałowego możliwe było uwzględnienie instrumentu ograniczania ryzyka kredytowego w postaci zabezpieczenia na nieruchomości mieszkalnej konieczne jest zapewnienie przez Instytucję, iż na dzień wyliczenia posiada ona aktualne ubezpieczenie tejże nieruchomości zabezpieczające przez ryzykiem powstania szkody? Czy może w myśl zapisów artykułu 208 paragraf 5 (literalnie czytając) wystarczy, iż Instytucja udowodni, iż posiada procedury i skuteczne mechanizmy monitorowania aktualności/ważności posiadanej polisy ubezpieczeniowej?EN translation:In order for the calculation of capital requirement to take into account collateral of residential property as a credit risk mitigation instrument, is it necessary for the Institution to ensure that, as at the calculation date, it holds up-to-date insurance for such real estate, protecting it against the risk of damage? Or perhaps, in accordance with the provisions of Article 208(5) CRR  (read literally), it would suffice if the Institution could prove that it has procedures and effective monitoring mechanisms in place to ensure that the existing insurance policies are valid and up-to-date?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2470
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/06/2016

Notification of model changes

Does an alignment of the quantification of default to the default frequency based on an approved method (i.e. an update to the PD scale to better mirror the default frequency) require a notification? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 529/2014 - RTS on materiality of extensions and changes in the advanced approaches (IRB and AMA)
  • ID: 2015_2468
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/11/2017

Own estimates of CCF in the retail exposure class

For which product types has a credit conversion factor (CCF) to be used in the retail exposure class, which is based on own estimates?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2397
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 05/05/2017

Applying a currency mismatch haircut to OTC derivatives in a netting pool which are in a currency different from settlement currency

For OTC derivative transactions covered by master netting agreements, if the exposure (derivative) currency is different from the settlement currency, should the exposure amount be increased by the currency mismatch haircut?While calculating the replacement cost of the derivatives, should the exposure amount be increased by the currency mismatch haircut?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2394
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 11/11/2016

Scope of asset value correlation adjustment for regulated entities

Should Undertakings for Collective Investment in Transferable Securities (UCITS) be treated as “subject to prudential regulation in the Union,” such that credit exposures to UCITS are only subject to the Asset Value Correlation (AVC) adjustment where the total assets of the counterparty on an individual or consolidated basis exceed EUR 70 billion? Should third country funds which are regulated on a comparable basis to UCITS (for example, US Investment Act 1940 funds, Employee Retirement and Income Security Act funds) receive the same treatment ?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2383
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 17/02/2017

Exposure secured by immovable property vs. secured by mortgages on immovable property

CRR requires the treatment of exposures secured by mortgages on residential property under the Standardised Approach (Article 124, 125, 126).Also CRR requires the treatment of exposures secured by immovable property collateral (Article 154(3)), and exposures secured by residential / commercial property (Article 164(4)), both under the IRB approach.(Regardless of the residential/commercial distinction), does the different formulation:- “mortgage on immovable property” (Article 124),- “exposure secured by immovable property collateral” (Article 154(3)),- “exposures secured by [residential / commercial] property” Article 164(4))refer to different kind of exposures?Q&A 1214 suggests that the scope is the same for all the three articles above.If however they are not the same, what sort of exposures are part of each group (and not part of another)? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2376
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 06/01/2017

Application of Article 215(2)(b) of the CRR

Can the competent authorities be satisfied that the effects of a guarantee (which covers losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make) justify the treatment of eligible unfunded credit protection when the time of payment such guarantee is indeterminate? Are there other considerations that the competent authorities should take into account to be satisfied with the effects of the guarantee to justify such treatment, in addition to those listed in article 213 and 215(1)(b) and (c) of CRR?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2306
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 18/11/2016

Risk weighting under standardised approach of an exposure secured by mortgage on residential property being constructed by the borrower (self-build) during the period of construction

Where a residential property is being constructed, and the mortgage loan finances both the construction and subsequent occupation of the property, and also provided that the loan is at all times fully and completely secured by the property in its current condition, for risk weighting purposes it is subject to Article 125 (1) (a) as “residential property which is or shall be occupied or let by the owner”, further assuming it also complies with the conditions in paragraph 2 of the Article, would  the 35% risk weight apply under that Article during the construction period as well as during occupation of the completed property?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2304
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/02/2017

Appropriate risk weight for speculative immovable property financing

Does CRR Article 128 (1) provide that a 150% risk weight need not be applied to one or more exposures listed in CRR Article 128 (2) - including speculative immovable property financing - or that are identified in accordance with CRR Article 128 (3), on the basis that it would not be appropriate to apply that rate to such an exposure?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2268
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 21/10/2016

Classification of Churches and Religious Communities

Will the exposures of churches and religious communities that do not fall under Articles 115 (3), 127, and 128 be classified as Corporates (Article 122) or Retail (Article 123)? Additionally, can these be classified as SMEs?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2227
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 11/03/2016

Classification of a performance bonds according to annex 1.

Does a performance bonds which guarantee satisfactory completion of a project by a contractor with an original maturity of more than one year qualify as Medium/low risk according to CRR, annex I, item 3(a)(ii) ?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2198
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/06/2016

Capital requirements deduction for credit risk on exposures to SMEs

Is capital requirement deduction (SME factor) applicable for specialised lending exposures if conditions determined in Article 501(2) of Regulation No 575/2013 (CRR) are met?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2135
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 01/04/2016

Determination of the exposure at defaul in case of unfunded credit protection

Under the advanced approach, the IRB Approach, as permitted by the Title II - Chapter 3, does not specify the order of application of the Credit Conversion Factor (CCF) and of the credit protection when an off-balance sheet exposure is covered by an unfunded credit protection (e.g. a CDS, Credit Default Swap). Does CRR prevent from applying the credit protection on the Exposure At Default (i.e.: after application of the CCF for an off-balance sheet exposure)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2063
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 03/06/2016

Application of the top-down approach based on EL calibration (article 160 al.2) - purchased receivables

Do these methods apply for other non-retail purchased receivables (i.e. institutions and sovereigns) ? For example, can an institution PD’s be calibrated using these top down approach based on EL calibration ?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2023
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 27/11/2015

Credit risk - standardised approach

Can cash equivalents be assigned a Risk weight of 0%? What is the definition of an equivalent cash item?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_2001
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 13/11/2015

Change of minimum values of exposure weighted average LGD for exposures secured by property in their territory

Does Article 164(5) of Regulation (EU) No 575/2013 (CRR) allow competent authorities to set higher minimum values of exposure weighted average LGD for exposures in one or more parts of its territory on the basis of Financial stability considerations? (In the same way as it is possible under Article 124(2) CRR)

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1992
  • Topic: Credit risk
  • Date of submission:

Can third country insurance companies be considered as unregulated financial entities

If a third country insurance or re-insurance is considered as not subject to "prudential supervisory and regulation requirements at least equivalent to those applied in the union" (as stated in article 142 (4) ) should we definitely consider this entity as neither "large financial sector entity" neither "unregulated financial sector entity" as defined under article 142 (4) and (5) ? Indeed the definition of "unregulated financial sector entity" ("an entity that is not a regulated financial sector entity but that performs, as its main business, one or more of the activities listed in annex I to directive 2013/36/EU or in annex I to directive 2004/36/EC") does not cover insurance activities.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2015_1991
  • Topic: Credit risk
  • Date of submission:
  • Published as final Q&A: 10/02/2017