According to Article 199(2)(b) of the Capital Requirements Regulation, Regulation (EU) 575/2013 (“CRR”), “institutions may use as eligible collateral residential property […] and commercial immovable property […] where […] the repayment of the facility does not materially depend on any cash flow generated by the underlying property serving as collateral”.

According to Article 199(3) of CRR, “Institutions may derogate from point (b) of paragraph 2 for exposures secured by residential property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates that do not exceed any of the following limits: (a) the aggregated amount reported by institutions under Article 430a(1), point (a), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,3%; (b) the aggregated amount reported by institutions under Article 430a(1), point (b), divided by the aggregated amount reported by institutions under Article 430a(1), point (c), does not exceed 0,5%”.

According to Article 199(4) of the CRR, “Institutions may derogate from point (b) of paragraph 2 for commercial immovable property situated within the territory of a Member State, where the competent authority of that Member State has published evidence showing that a well-developed and long-established commercial immovable property market is present in that territory with loss rates that do not exceed any of the following limits: (a) the aggregated amount reported by institutions under Article 430a(1), point (d), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,3%; (b) the aggregated amount reported by institutions under Article 430a(1), point (e), divided by the aggregated amount reported by institutions under Article 430a(1), point (f), does not exceed 0,5%.”

According to Article 430a(1) of CRR, “institutions shall report to their competent authorities on an annual basis the following aggregate data for each national immovable property market to which they are exposed: (a) losses stemming from exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 55% of the property value of the residential property, unless otherwise decided under Article 124(9), where applicable; (b) overall losses stemming from exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 100% of the property value of the residential property; (c) the exposure value of all outstanding exposures for which an institution has recognised residential property as collateral, in each case up to the lower of the pledged amount and 100% of the property value of the residential property; (d) losses stemming from exposures for which an institution has recognised commercial immovable property as collateral, in each case up to the lower of the pledged amount and 55 % of the property value of the commercial immovable property, unless otherwise decided under Article 124(9), where applicable; (e) overall losses stemming from exposures for which an institution has recognised commercial immovable property as collateral in each case up to the lower of the pledged amount and 100% of the property value of the commercial immovable property; (f) the exposure value of all outstanding exposures for which an institution has recognised commercial immovable property as collateral, in each case up to the lower of the pledged amount and 100% of the property value of the commercial immovable property”.

According to Article 199(4a) of the CRR, “institutions may also apply the derogations referred to in paragraphs 3 and 4 of this Article in cases where the competent authority of a third country […] publishes corresponding loss rates for exposures secured by residential property or commercial immovable property situated within the territory of that third country”.

According to Article 4(75) of the CRR, “‘residential property’ means any of the following: (a) an immovable property which has the nature of a dwelling and satisfies all applicable laws and regulations enabling the property to be occupied for housing purposes; (b) an immovable property which has the nature of a dwelling and is still under construction, provided that there is the expectation that the property will satisfy all applicable laws and regulations enabling the property to be occupied for housing purposes; (c) the right to inhabit an apartment in housing cooperatives located in Sweden; (d) land accessory to a property referred to in point (a), (b) or (c)”.

According to Article 4(75a) of the CRR, “‘commercial immovable property’ means any immovable property that is not residential property”.

The reporting according to Article 430a(1) is further detailed in the reporting template (Annex VI of Commission Implementing Regulation 2021/451) and the instructions for the reporting on losses stemming from lending collateralised by immovable property (Annex VII of Commission Implementing Regulation 2021/451) and includes relevant definitions of losses, exposure values and property values as well as reference date considerations. Regarding the losses, 

• “‘loss’ means ‘economic loss’ as defined in point (2) of Article 5 CRR […]”;
• “recovery flows stemming from other sources (e.g. bank guarantees, life insurance, etc) shall not be recognised when calculating losses”;
• “loss shall not be netted with the profit of a successful recovery of another position”;
• “the calculation of economic loss should start from outstanding exposure value at reporting date and should include at least: (i) proceeds from collateral realisation; (ii) direct costs (including interest rates payments and workouts costs linked to the liquidation of the collateral); and (iii) indirect costs (including operating costs of the workout unit). All components need to be discounted to the reporting reference date.”;
• “Losses shall be reported as soon as provisions are to be booked in accordance with accounting rules. Also estimated losses should be reported. […]”
• “Losses should be reported for all defaults on loans secured by real estate property that occur during the respective reporting period and irrespective of whether the work out is completed during the period or not. […] Since there may be a long time lag between default and loss realisation, loss estimates (which includes incomplete workout process) shall be reported in cases where the workout has not been completed within the reporting period”
• “[…] the latest valuation of the property before the default date shall be used to determine which part of the loss shall be reported in cell 0010 (identification of exposure values which is fully and completely secured) and the re-valued property value for the amount to be reported (estimation a possible workout from collateral) in cells 0010 and 0030 [losses].”

A supervised institution calculate risk-weighted exposure amounts and expected loss amounts under the IRB Approach and uses immovable property collateral situated in the US. This immovable property does not fulfil point (b) of paragraph 2 of Article 199 CRR. Therefore, the supervised institution derogates from  point (b) of paragraph 2 of Article 199 CRR based on Article 199(4a). For this purpose, the supervised institution identifies as corresponding loss rates the US charge-off rates extracted from the FRED (Federal Reserve Economic Data) online database hosted by the Research Department at the Federal Reserve Bank of St. Louis (suggested citation according to the FRED webpage: “Board of Governors of the Federal Reserve System (US), Charge-Off Rate on Commercial Real Estate Loans (Excluding Farmland), Booked in Domestic Offices, All Commercial Banks [CORCREXFACBS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CORCREXFACBS, December 18, 2025”). The supervised institution performs a potential mapping of US Commercial Real Estate (CRE) charge-offs rates to commercial immovable property hard test loss rates under a given set of assumptions and transformations as follows:

1. Losses (nominator of loss rates): The US charge-off rates include in the nominator net charge-offs (gross charge-offs minus recoveries). These net charge-offs do not incorporate the cap to the lower of the pledged amount and 55% of the property value  of the commercial immovable property as defined in Article 430a(1)(d) CRR. These net charge-offs also do not incorporate the cap to the lower of the pledged amount and 100% of the property value of the  commercial immovable property as defined in Article 430a(1)(e) CRR. Losses that do not incorporate the cap as defined in Article 430a(1)(e) CRR may be considered equivalent under the assumption that losses would not exceed the property value. The second assumption is that the US net charge-offs include all relevant losses as defined in Annex VII  of Commission Implementing Regulation 2021/451.
2. Secured exposure value (denominator of hard test loss rates): The US charge-off rates include in the denominator the outstanding amount of the loans. The denominator of the hard test loss rate is defined in Article 430(1)(f) CRR as the exposure value of all outstanding exposures for which an institution has recognised commercial immovable property as collateral, in each case up to the lower of the pledged amount and 100% of the property value of the commercial immovable property. These can be assumed as equal if all loans are fully secured and thus the outstanding loan amount would be equal to the Article 430(1)(f) CRR secured exposure value.
3. Loss rates and thresholds: Following the description above, the US charge-off rates could be mapped against the loss rate defined in point (b) of paragraph 4 of Article 199 CRR, but no US charge-off rate is available that could be mapped against point (a) of paragraph 4 of Article 199 CRR. Therefore, the US charge-off rate would have to be compared to the lower of the two thresholds, 0.3%, as referred to in  point (a) of paragraph 4 of Article 199 CRR.
4. Quarterly vs. annual data: The US charge-off rates are published in the FRED online database as annualised quarterly data (not seasonally adjusted data) and need to be converted to annual charge-off rates by a weighted average. For this purpose, corresponding data on loan volumes need to be used and the FRED online database includes monthly data on loan volumes.
5. Different definitions of commercial immovable property in the CRR and commercial real estate in the FRED data: The US definition for CRE differs from the definitions in Article 4(75a) CRR since US CRE excludes farmland but includes multifamily residential. A correction for this mismatch in the definition requires the identification of separate charge-offs and volumes for each property type so that the sums or differences, respectively, of nominator and denominator and thereafter adjusted charge-off rates can be calculated. The charge-offs in the nominator can also be derived from the charge-off rates and the volumes. This is possible for farmland, as both, quarterly charge-off rates and monthly volumes are published in the FRED online database. For multifamily residential, monthly volumes are also available, but no separate charge-offs or charge-off rates. Therefore, the US charge-off rate for commercial real estate including farmland and excluding multifamily residential can only be approximated by keeping the charge-offs for multifamily residential property included in the nominator but excluding the respective volumes from the denominator. Such approximation would be exact under the assumption that the charge-offs for multifamily residential were zero. 

For residential property, similar considerations apply. However, as stated under point 5) above, the charge-offs for multifamily residential cannot be separated from the US CRE charge-offs.