Question ID:
2017_3231
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
114
Paragraph:
2
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:
Risk weight to apply to exposures to unrated central banks
Question:

What risk weight should be assigned to exposures to the central bank of a non EU-member country when the central bank does not have a credit assessment by a nominated ECAI (i.e., it is unrated)? Would it be appropriate to assign a risk weight of 100% to exposures to said central bank, independently of the rating of the central government?

Background on the question:

Article 114 of the CRR states that exposures to central banks and central governments should be risk weighted at 100%, unless a series of exceptions apply (paragraphs 2-7 or Article 114). For non-member states without equivalent supervision, the only potential deviation from a RW of 100% lies in external ratings. It is implicit in paragraph 2 that the existence of an external rating for the central bank or for the central government would change the risk weight of associated exposures, but not of exposures to both entities. In other words, we would like to confirm that the existence of an external credit rating for a central government would not by itself be sufficient to change the risk weight of exposures to an unrated central bank (and vice-versa).

Date of submission:
20/03/2017
Published as Final Q&A:
14/07/2017
EBA Answer:

Where an ECAI nominated by the institution has provided a credit assessment that applies to exposures to the central government of a third country but not to exposures to the central bank of this country, this credit assessment is not available for assigning a corresponding risk weight to exposures to the central bank according to Article 114(2) of Regulation (EU) No 575/2013 (CRR).

Likewise a credit assessment by a nominated ECAI applying to exposures to the central bank of a third country but not to the central government of this third country is not available for assigning a corresponding risk weight to exposures to the central government according to Article 114(2) CRR.

Therefore, in accordance with Article 114(1) CRR, exposures to central governments and central banks for which a credit assessment by a nominated ECAI is not available shall be assigned a 100 % risk weight, unless the treatments set out in paragraphs 2 to 7 apply.

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.

Image CAPTCHA