2013_430 Highly leveraged obligors | European Banking Authority

Question ID:: 2013_430
Legal Act:: Regulation (EU) No 575/2013 (CRR)
Topic:: Credit risk
Article:: 180
Paragraph:: 1
Subparagraph:: (a)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:: Not applicable
Article/Paragraph:: 180
Disclose name of institution / entity:: No
Type of submitter:: Credit institution
Subject Matter:: Highly leveraged obligors
Question:: How to define/identify 'highly leveraged obligors' under Article 180(1)(a)?
Background on the question:: Highly leveraged obligors is not defined in Regulation (EU) No 575/2013 (CRR).
Date of submission:: 24/10/2013
Published as Final Q&A:: 25/07/2014
Final Answer:: Regulation (EU) No. 575/2013 does not define "highly leveraged obligors", but requires institutions to ensure that the probability of default (PD) estimates for such obligors reflect the performance of their assets based on stressed volatilities. Accordingly, institutions are under an obligation to identify among their obligors those for whom the default risk is particularly sensitive to changes in the value of their assets because of a high leverage or because their assets are predominantly traded assets, and to ensure that PD estimates for such obligors are reflective of the performance of assets based on stressed periods.
Status:: Final Q&A
Answer prepared by:: Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Note to Q&A:: Update 26.03.2021: This Q&A has not yet been reviewed by the European Commission in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).