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Q&As refer to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.

Please note that the Q&As related to the supervisory benchmarking exercises have been moved to the dedicated handbook page. You can submit Q&As on this topic here.

List of Q&A's

Interaction of the risk drivers employed to define the structure of the PD model and the requirement to avoid the excessive cyclicality of own funds requirements.

Is considering the requirement of CRR Article 170 4(c) to incorporate the ‘delinquency’ risk driver in the structure of rating systems possible, to avoid a potential excessive cyclicality of own funds requirements via the use of appropriate calibration techniques in line with the Entity’s chosen calibration philosophy?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures

Interaction of the structure of the rating system and homogeneity requirements with conservatism in the application of risk parameters

Considering a rating structure defined according to article 170 of CRR, would the consideration of conservatism in the application of risk parameters alter such structure? In particular, do homogeneity analyses need to be conducted before or after the consideration of the conservatism in the application of risk parameters described in section 8.1 of the EBA/GL/2017/16?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures

Supervisory delta for commodities with negative prices

Article 279a (1), (a) of the CRR establishes the formula to be used for calculating the supervisory delta of options mapped to all risk categories except for the interest rate category. Can such formula be made compatible with market conditions in which commodities may have negative prices?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Fair value adjustments that arise as a result of applying fair value hedge accounting

This question is a reformulation of the Q&A 4406, with two examples for clarify the problem and some possible answers. Should fair value adjustments which arise as a result of applying fair value hedge accounting to mitigate interest rate risk be treated under the CRR credit risk framework or under a different risk framework? And if under a different risk framework, which risk framework should that be?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)

Supervisory Factor for Credit Derivatives with underlying securitization for SA-CCR

The supervisory factor for the credit risk category add-on is to be assigned based on the rating assigned to the issuer of the underlying credit derivative.For securitisations, should the rating of the SPV issuing the various tranches be used or can the rating of the tranche be used? If the SPV is not rated but the tranches are, should the exposure be considered unrated?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Collateral Valuation

My question is in respect to the need for independence of valuers. Should a Bank' procedure allow customers to propose valuers subject to acceptance of the Bank and fulfilment of the independence criteria mentioned in the guidelines, would the Bank be considered as fulfilling the need for independence of valuer?

  • Legal act: Directive 2013/36/EU (CRD)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2020/06 - Guidelines on loan origination and monitoring

Determination of exposure value cap for netting sets subject to a margin agreement.

The final answer to EBA Q&A 2023_6962 states that when capping the exposure value of a margined netting set at the exposure value of the same netting set not subject to any form of margin agreement “The term NICA, included in the formula set out in Article 275(1) and defined in Article 272(12a), does not include the variation margin posted or received.”   We believe that this is an incorrect reading and could lead to significant under estimation of RWAs whenever the institution is posting significant excess collateral to its client. This can happen particularly when trades with a large MTM unwind at maturity and the collateral balance is exchange back only on T+1 basis.   Take the following example scenario. If calculating the EAD per the margined methodology the variation margin posted to the client offsets some of the MTM of the derivatives and the add-on is fully added to EAD as the multiplier remains 1.    However under the unmargined methodology if I disregard the posted collateral then the negative current replacement cost works to significantly offset the add-on and can actually result in an EAD below the EAD incurred on only the actual replacement cost/current exposure (in this example 140).   Example Scenario       MTM of Derivatives -50 Variation Margin posted to client 150 Replacement Cost (Margined) 100 Add-on (pre multiplier) 100 Multiplier 1 EAD per margined methodology 280     MTM of Derivatives -50 Variation Margin posted to client (ignored as not NICA) 0 Replacement Cost (Unmargined ignoring VM posted) 0 Add-on (pre multiplier) 100 Multiplier 0.78 EAD per unmargined methodology 109     Final capped EAD to unmargined 109   Our understanding is that the wording in Article 274(3) which says “the exposure value of a netting set that is subject to a contractual margin agreement shall be capped at the exposure value of the same netting set not subject to any form of margin agreement” instead of meaning that there is no variation margin and hence this should be completely removed in the unmargined cap calculation should actually be read in conjunction with Article 272(12a) to define that in the absence of a margin agreement there can be nothing classed as “variation margin” and therefore all collateral is part of NICA – “NICA means the sum of the volatility-adjusted value of net collateral received or posted, as applicable, to the netting set other than variation margin”.   If we follow the previous Q&A answer then we will see significant reductions in RWA which we feel are unwarranted vs the counterparty risk for netting sets which exhibit the same portfolio dynamic as in the example above. The purpose of the cap is only to ignore exposure from large threshold amounts and not to avoid exposure from large amounts of posted collateral which are still owed back 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Calculation of loss rates for income producing real estate (IPRE) under the standardized approach for credit risk under the CRR III (Regulation (EU) 2024/1619)

What is the correct calculation of loss rates for the purposes of Articles 125 para. 2 subpara. 3 and 126 para. 2 subpara. 3 CRR (as amended by regulation (EU) 2024/1623, ie. CRR III)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Regulatory Reporting treatment in COREP of credit risk exposures linked to participated loans

Should exposures linked to loans participated in by other parties and de-recognised under IFRS 9 3.2.5 be reported as ORIGINAL EXPOSURE PRE CONVERSION FACTORS and mitigated by the amount received as the price paid for the participation or shall de-recognition allow the institutions to report ORIGINAL EXPOSURE PRE CONVERSION FACTORS equal to zero. 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)

Regulatory Reporting treatment in COREP of credit risk exposures linked to participated loans

Should exposures linked to loans participated in by other parties and de-recognised under IFRS 9 3.2.5 be reported as ORIGINAL EXPOSURE PRE CONVERSION FACTORS and mitigated by the amount received as the price paid for the participation or shall de-recognition allow the institutions to report ORIGINAL EXPOSURE PRE CONVERSION FACTORS equal to zero. 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)

Counting of days past due in factoring arrangements.

As for non-recourse factoring, is it correct to start the counting of days past due based on the payment schedule defined or implied in the contractual terms with the client (i.e., the party from which the factor purchases the receivables)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2016/07 - Guidelines on the application of the definition of default under Article 178 CRR

Simultaniously use of the SME and infrastructure factor

Please see the existing question, which was not answered yet: 2020_5551

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Delegated Regulation (EU) 2015/61 - DR with regard to liquidity coverage requirement

application of credit conversion factor in accordance with article 235

How shall institution calculate risk-weighted exposure amounts for off-balance-sheet exposures with unfunded credit protection, to which those institutions apply the standardized approach? How shall credit conversion factor be applied to the formula specified in article 235 before the application of risk weight?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions (repealed)

Unrated short term claim/exposure

As per CRR Article 120(para 3, subpara c), it states: "If there is a short-term assessment and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the general preferential treatment for short-term exposures shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term assessment." Question: What is meant by unrated short-term claims as per this paragraph? If there is a general issuer rating available, will the exposures with residual maturity of less than 3 months be classed as Unrated and not eligible for preferential risk weight treatment as per CRR Article 120 (2)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting of Institutions

Risk weight for Exposures in default

What risk weight should be applied to in default exposures, under the standardised approach for credit risk? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Fair-valued assets and liabilities excluded because of partial impact on CET1 – Prudential Filters

Template C32.01 Prudent valuation. Fair-Valued assets and liabilities requires the Prudential filters Fair-valued assets and liabilities excluded because of partial impact on CET1 (col 0050) to be reported in accordance with Article 4(2) of Delegated Regulation (EU) 2016/101 due to the transitional application of the prudential filters referred to in Articles 467 and 468 of Regulation (EU) No 575/2013. Since Articles 467 and 468 of Regulation (EU) No 575/2013 are related to COVID transitional fix items, should the institution report 0 in this column until the guidance is updated?   Additionally, validation v6566 related to this template, states that values reported for Fair-valued assets and liabilities excluded because of partial impact on CET1 – Prudential Filters (c0050) have to be equal to or higher than 0. Could you please confirm if this validation is applicable in all the contra liability balances?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Interpretation of ‘ The degree of correlation between the value of the assets relied upon for protection and the credit quality of the obligor shall not be too high.’

In Article 194, Quote Institutions may recognise funded credit protection in the calculation of the effect of credit risk mitigation only where the lending institution has the right to liquidate or retain, in a timely manner, the assets from which the protection derives in the event of the default, insolvency or bankruptcy — or other credit event set out in the transaction documentation — of the obligor and, where applicable, of the custodian holding the collateral. The degree of correlation between the value of the assets relied upon for protection and the credit quality of the obligor shall not be too high. Unquote My question is about the aforementioned correlation. If a obligor’s major asset is a very valuable mine asset, and the mine asset is collateralized by a bank as security for a loan, is it eligible for the bank to consider the value of the mine asset for calculating the ‘risk-weighted asset’? The value of the mine asset is valued by independent & renowned evalution agency and it meets with all other regulatory requirements for eligible collateral.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2016/09 - Guidelines on corrections to modified duration for debt instruments under Article 340(3) CRR

Unrated short term claim/exposure

As per CRR Article 120(para 3, subpara c), it states: "If there is a short-term assessment and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the general preferential treatment for short-term exposures shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term assessment." Question: 1. Is the term claim and exposure used interchangeably and mean the same?                   2. What is meant by unrated short term claim in this paragraph? If there is a general issuer rating available for the counterparty, but no issue specific rating for the exposure to the counterparty, will the exposures with residual maturity of less than 3 months be classed as Unrated and not eligible for preferential risk weight treatment as per CRR Article 120 (2)?                   3. Also, for ex- if the bank has trading book exposure to this institution for exposure less than 3 months. But this institution has issued short term debt, but the bank has no exposure to it, in that case which rating will be used to risk weight the exposure in the trading book. Will it be the issuer rating or short term debt rating the institution has issued which the bank has no exposure?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting of Institutions

Definition of 'explicit guarantee arrangements' for the purpose of classification of non-commercial undertakings as public sector entities

What conditions should be met by a given agreement in order to qualify as an 'explicit guarantee arrangement'? Shall the ‘explicit guarantee arrangements’ for the purpose of definition of public sector entities also be ‘guarantees’ eligible as unfunded credit protection or not? How much should the guarantee cover?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Non-applicability of the CRR (Capital Requirements Regulation) regarding OCCPs

According to Article 111 CRR, OCCPs must be included in the calculation of the Total Capital Ratio (TCR) under Pillar I, even though their economic risk is fully mitigated by the DvP mechanism. Eurex Clearing AG only includes OCCPs in their balance sheet, as per accounting standards. While the risk of OCCPs is covered in the CCP risk management framework through margins and other lines of defense, they cannot be mitigated through collateralization or netting under the CRR framework.    Regarding the information in section 1 and 2, ECAG would like to inquire whether the OCCPs can be exempted from the application of Article 111 CRR.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable