Question ID:
2018_4207
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
244, 247
Paragraph:
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
n/a
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Treatment of failed SRT under Traditional Securitisation
Question:

In case the significant credit risk cannot be considered to have been transferred according to 2443 of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2017/2401, but the exposures had been already derecognised from the bank's balance sheet, shall the bank continue to calculate the RWA for the securitised exposures as if they were never securitised? Does it mean that no RWA will be calculated for the securitisation position?  

Additionally, if the exposures have been securitised against cash, and the cash invested in new loan, would RWA be calculated for these new loans

Background on the question:
If the SRT fails in a traditional securitisation, the securitised exposures may not be excluded from the RWA calculation.
 
In the case that a book value of exposures of 200 (A) has been securitised against (B) 140 cash and (C) 60 as a position in the securitisation, and the SRT fails, the bank will continue to calculate RWA for (A) as if they were never securitised, despite their derecognition from the bank's balance sheet.
 
1) Does this mean that for (B) and (C) no RWA will be calculated? Otherwise it will lead to double counting. Follows article 245 par. 2.
2) Additionally, if (B) is invested elsewhere e.g. new corporate loans, no RWA should be calculated for these new loans? Otherwise, as with point 1, it will lead to double counting. (B) is part of (A) for which RWA are already calculated.
 
Article 245(2) states that where the originator institution has not transferred SRT, it need not calculate RWA for any position it may have in the securitisation in question.
However, it is not clear what happens in the cash consideration (B) that is against the securitisation position, and how to treat it going forward.
Date of submission:
20/08/2018
Published as Final Q&A:
26/07/2019
Final Answer:

The present question refers to the Articles 243 244 and 245 247 of Regulation (EU) No 575/2013 (CRR) as worded before the amendment introduced by Regulation (EU) 2017/2401. Following the entry into force of said Regulation, those provisions have been respectively replaced by Article 244 and Article 247 CRR as amended by Regulation (EU) 2017/2401.

In accordance with Article 2475(2), second subparagraph of Regulation (EU) No 575/2013 as amended by Regulation (EU) 20179/2401876 an originator institution that has not achieved a significant risk transfer or has decided not to apply Article 2475(1) CRR needs not to calculate risk-weighted exposure amounts for any positions it may have in the securitisation in question, as they shall continue to calculate RWAs as if the underlying exposures had never been securitised.


It follows that in the above example the originator institution does not need to calculate risk-weighted exposure amounts for the retained securitisation positions (i.e. position (C)) but shall continue to calculate RWA for (A) as if the underlying exposures had never been securitised. However, the 140 cash (i.e. position (B)) do not constitute a securitisation position in the securitisation in question and hence are not subject to the exemption established in the second subparagraph of Article 2475(2) CRR. Instead any exposure funded by this cash have to be treated as a new/additional exposure(s) and hence the originator institution has to calculate (additional) risk-weighted exposure amounts for any exposure funded by (B).
The economic rationale for the different treatment of position (B) and position (C) is that regarding position (C) no additional losses (in excess of losses related to the securitised exposures) can result whereas position (B) does constitute a new position/exposure(s) in addition to the securitised underlying.

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 updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).

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