According to Article 124(3) of Regulation (EU) No. 575/2013 (CRR), institutions should have a 6-month transitional period to apply higher risk weights set by the competent or designated authorities to exposures secured by mortgages on immovable property.
Should this transitional period also apply if the national authority decides under CRR to set risk weights at the same level and to the same extent, i.e. for the same kind of exposures that are currently set under CRD (so in fact such decision would not result in a higher capital requirements for banks in comparison to current national legislation)?
According to current Polish legislation, for FX exposures secured by mortgages on residential property, a 100% risk weight is applied. A 50% risk weight for exposures secured by mortgages on commercial immovable property is not allowed (except for leasing transactions and properties located in countries where 50% risk weight is applied) and 100% risk weight is applied. Taking into account the above, the 100% risk weight in case of aforementioned exposures, however higher than "general" level, would in fact remain unchanged. So, the transitional period does not seem to be justified or needed.
Article 124(3) of Regulation (EU) No. 575/2013 (CRR) provides that "when the competent or designated authorities set a higher risk weight or stricter criteria, institutions shall have a 6-month transitional period to apply the new risk weight". The purpose of this transitional provision is to provide institutions with the necessary time to adapt to the new risk weights. In the event that no new risk weights are imposed under the provisions of Article 124(2) of the CRR, the transitional period is not relevant.
Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).