Can cash equivalents be assigned a Risk weight of 0%? What is the definition of an equivalent cash item?
Question raised to ECB Methodology and Standards Development Division.
The term "equivalent" in Article 134 (3) of Regulation (EU) No 575/2013 (CRR) does not refer to alternatives to "cash items" but to alternatives to "cash in hand".
Cash in hand, as defined by Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions, Annex V, Part 2, Point 1 (Instructions on Balance Sheet, Assets), includes holdings of national and foreign banknotes and coins in circulation that are commonly used to make payments.
The 0% risk weight is solely applicable to cash items but not to "cash equivalents". The applicability of the 0% risk weight is, however, not limited to cash in hand but extends to other forms of cash items different from deposits, on the balance sheet of the institution under the applicable accounting framework.
Balances in local currency held on current accounts of the respective central bank should be treated according to Article 114.
Please also see Q&A 180.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.