Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Credit risk
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Not applicable
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
Classification as off-balance sheet items of a committed reverse repo facility or other committed credit facilities where drawing under the facility is conditional upon purchasing or receiving eligible collateral

Would it be possible for an institution to assign a committed reverse repo facility, or other committed credit facility where drawing by the client is conditional to purchasing or receiving eligible collateral by the institution, to one of the risk categories as “other items also carrying [low], [medium/low], [medium] risk and as communicated by EBA”, in accordance with Article 111(1) CRR or Article 166(10) CRR and Annex I?

Background on the question:

For certain, but not uncommon type of committed credit facilities, including a committed facility allowing the client to enter into a repurchase transaction, the cash-outflow is conditional to the prior or simultaneous purchase or receipt of eligible collateral by the institution. This means that as long as such committed facility hasn’t been drawn by the client, the institution has not purchased or received the collateral, and therefore cannot use the collateral as credit risk mitigation for the existing credit risk exposure from the committed credit facility. Instead, after or at the time of the purchase or receipt of the eligible collateral by the institution and subsequent or simultaneous payment to the client, the credit protection may very well be used for the drawn amount. This could result in the situation that no RWA and ELA may be required at all, for example in case the fully adjusted exposure under CRR art 220 would be nil. Ergo, for certain fully-collateralised committed credit facilities, the committed but undrawn amount may require more RWA (and ELA where applicable) than the drawn amount, unless it would be allowed for the institution to assign such commitment to the ‘low risk’ category of Annex I, in accordance with Article 111(1) CRR or Article 166(10) CRR, as “other items also carrying low risk and as communicated to EBA”.

Date of submission:
Published as Final Q&A:
Final Answer:

The assignment to one of the risk categories indicated in Annex I of the CRR depends on the characteristics of the off-balance sheet item itself. In general this is regardless of the collateral received as a form of credit risk mitigation and recognised through relevant CRM techniques according to the approach to credit risk employed by the institution. For examples on how the classification process, see also Q&A 2198 and Q&A 2916.

Where collateral satisfies all eligibility requirements set in Regulation (EU) 575/2013 (CRR), it can be recognised as such, even for exposures associated with undrawn facilities. In case of a committed reverse repo facility, or committed credit facility the relevance of the collateral is determined by whether the facility is drawn or can no longer be prevent from  being drawn. For financial collateral, where an institution applies the standardised approach or does not use own estimates of LGDs for the secured exposure, Article 207(3) CRR requires to ensure the enforceability of the collateral arrangements under the law applicable to their interest in the collateral.

If any of the eligibility conditions or requirements for the usage of the form of credit protection is not met, mainly i) the legal certainty of the arrangement, ii) the eligibility of the form of credit protection, and iii) the irrevocable requirement that the collateral has to be received prior or simultaneously to the moment where credit is finally drawn, such collateral cannot be considered eligible for credit risk mitigation purposes.

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.