Are irrevocable standby letters of credit and guarantees, which neither have the character of credit substitutes nor are related to trade finance, assigned to the risk category ‘medium risk’ according to Annex I?

Annex I CRR assigns the off-balance sheet items to the four different risk categories. Whereas certain off-balance sheet items are explicitly assigned to a risk category, there is also a ‘catch all clause’ for all other items carrying full, medium, medium/low and low risk. For the last three risk categories, those items must also be communicated to EBA. However, the CRR does not give any additional guidance to which risk category other off-balance sheet items must be assigned that are not explicitly listed.

For example, irrevocable standby letters of credit or guarantees, that neither have the character of credit substitutes nor are related to trade finance, are not explicitly assigned to any risk category.

However, irrevocable standby letters of credit and guarantees having the character of credit substitutes are assigned to the risk category ‘full risk’ (see Annex I (1) (a) and (f) CRR).

In addition, trade finance related irrevocable standby letters of credit and guarantees not having the character of credit substitutes are assigned to the risk category ‘medium/low risk’ (see Annex I (3) (a) (ii) and (iii) CRR).

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.