Question ID:
2016_2935
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
134
Paragraph:
5
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
Not applicable
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Other items
Question:

Does the approach specified in Article 134(5) CRR regarding the risk weight to be applied to assets purchased on a forward basis also apply to assets sold on a forward basis?

Background on the question:

Article 134(5) CRR specifies that the risk weight which should be applied to assets purchased on a forward basis should be risk weighted based on the asset in question and not the counterparty with which the contract has been written.

From an accounting perspective Trade Date accounting is applied to assets which have been sold forward. For example, if a Sovereign Bond is sold forward one week then on the day the transaction is entered into (i.e. one week before the delivery date) the Available for Sale asset is credited (reduced) and the asset "Other items" is debited (increased). What risk weight should apply to this asset between the Trade Date and the delivery date - should it be the risk weight of the Sovereign Bond or the risk weight of the counterparty to which the bond has been sold.

Date of submission:
10/10/2016
Published as Final Q&A:
21/04/2017
Final Answer:

Article 134(5) of Regulation (EU) No 575/2013 (CRR) is not applicable to outright forward sales because this provision is explicitly limited to asset sale and repurchase agreements and outright forward purchases.

As long as the asset sold forward remains included as an asset in the balance sheet, the institution remains exposed to the same loss risk for this asset as before. Thus, the same capital requirements as before the forward sale continue to apply to this asset, irrespective of any re-assignment from one accounting category to another. In particular the exposure class “other items” according to Article 112(q) CRR is independent from an assignment to a category “other items” under the applicable accounting framework.  

Status:
Final Q&A
Answer prepared by:
Answer prepared by the EBA.
Note to Q&A:

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.

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