Consultation on draft RTS concerning the assessment of appropriateness of risk weights and minimum LGD values

The European Banking Authority (EBA) published today a consultation paper on a draft Regulatory Technical Standards specifying the types of factors to be considered for the assessment of appropriateness of risk weights and the conditions to be taken into account for the assessment of appropriateness of minimum loss given default (LGD) values for exposures secured by immovable property. The consultation runs until 29 July 2021.

The relevant authority, as designated by the Member State, may set higher risk weights or impose stricter criteria on risk weights, or increase the minimum LGD values when the following two conditions are met:

• the risk weights do not adequately reflect the actual risks related to the exposures secured by mortgages on residential property or commercial immovable property, or that the minimum LGD values are not adequate;
• the identified inadequacy of these risk weights or minimum LGD values could adversely affect the current or future financial stability in the Member State.

These draft RTS focus on the first condition. For institutions applying the standardised approach (SA), these draft RTS specify the types of factors that authorities should consider during the risk weight assessment on the basis of the loss experience of exposures secured by immovable property and forward-looking immovable property market developments.

For institutions applying the internal ratings-based (IRB) approach to retail exposures secured by residential or commercial immovable property, these draft RTS provide conditions to be considered when assessing the appropriateness of minimum LGD values.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 29 July 2021. All contributions received will be published following the end of the consultation, unless requested otherwise.

A public hearing will be organised in the form of a webinar on 30 June 2021 from 10:00 to 11:30 CET. The EBA invites interested stakeholders to register using this link. The dial-in details will be communicated in due course.

Legal basis

These draft RTS have been developed according to Articles 124 (4) and 164 (8) of Regulation (EU) No 575/2013 (CRR), which mandates the EBA to develop, in close cooperation with the European Systemic Risk Board (ESRB), draft RTS to specify the types of factors to be considered for the assessment of the appropriateness of the risk weights referred to in the first subparagraph of paragraph 2 of Article 124 of the Capital Requirements Regulation (CRR); and the conditions that the authority designated by the Member State shall take into account when assessing the appropriateness of minimum LGD values as part of the assessment referred to in paragraph 6 of Article 164 CRR.