Are aircraft loans eligible as collateral and as a consequence credit quality step 1 in the case explained in the background or do they not receive the preferential treatment or otherwise are they non-eligible for LCR in every case?
An institution has two covered bonds collateralized by aircraft loans. In Article 129 CRR it is not specified whether such assets are eligible for covered bonds to get the preferential treatment. The covered bonds of this institution got a Aa3 Rating by Moody's that normally should qualify them for credit quality step 1 according to Article 129(4) CRR.
As per Article 10(1)(f)(v) of Delegated Regulation (EU) 2015/61 Level 1 covered bonds are subject to the preferential treatment in paragraph 4 and 5 of Article 129 of Regulation (EU) No 575/2013 (CRR) (i.e. a credit quality step 1 with an assigned 10% risk weight or, in the absence of a credit assessment, an assigned risk weight of 10%). Article 129(1) lists the types of collateral required for covered bonds to be eligible for the preferential treatment envisaged in paragraph 4 and 5. Loans secured by aircrafts (aircraft liens) are not included in Article 129(1). Therefore covered bonds collateralised by aircraft loans do not meet the requirements to be eligible as level 1 HQLA.
For the same reasons, and as per Articles 11(1)(c) and 12(1)(e) of Delegated Regulation (EU) 2015/61, covered bonds collateralised by aircraft loans do not meet the requirements to be eligible as Level 2A or 2B HQLA.
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.