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Risk weights assignment to IPRE exposures secured by many properties

Articles 125 and 126 paragraph 2 Regulation (EU) No 575/2013 (CRR) specify the rules for risk weights assignment to IPRE exposures, respectively secured by residential and commercial properties. However, these regulations don’t clarify how risk weights should be assigned to IPRE exposure when it’s secured by both residential and commercial property – especially when one property is IPRE (income producing property) and the second one is non-IPRE (the residential property, let’s assume that this is the flat of a counterparty). 

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Clarification of ETV calculation for mortgages securing more than one exposure

Article 124 paragraph 6 Regulation (EU) No 575/2013 (CRR) specifies the calculation of ETV for IPRE exposures. In order to calculate ETV, the gross value of an exposure should be divided by the value of property. Additionally, this article clarifies that: “For the purposes of the first subparagraph, point (a), where an institution has more than one exposure secured by the same immovable property and those exposures are secured by liens on that immovable property that are sequential in ranking order without any lien held by a third party ranking in-between, the exposures shall be treated as a single combined exposure and the gross exposure amounts for the individual exposures shall be summed up to calculate the gross exposure amount for the single combined exposure.” Our question refers to calculation ETV for joint mortgages – so the mortgage which secures more than one exposures and additionally these exposures may have other mortgages assigned. Based on the above, it’s clear that numerator should include the gross value of all exposures secured by this joint mortgage. Nevertheless, it’s unclear which value should be used in the denominator of ETV in the real life example described below.

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Definition of "official export credit agency" for the calculation of deduction for non-performing exposures

Article 47c(4a) of the CRR exempts the part of a non‑performing exposure guaranteed or insured by an “official export credit agency” (ECA) from the deduction requirements laid down in Article 47c. However, the CRR does not define the term “official export credit agency”. In this context, what are the criteria for qualifying as an “official export credit agency” and how can it be determined whether an export credit agency and the guarantee or insurance provided meets the criteria for applying the derogation as provided in CRR Article 47c(4a)?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Application of Article 199(6)(d) for low default portfolios

In cases where institutions do not have a sufficient internal track record of default and liquidation events due to the low-default nature of certain portfolios, is there an alternative approach, such as the use of relevant external data, market evidence, or a combination of internal and external information, that could be considered acceptable to demonstrate compliance with Article 199(6)(d) for eligible physical collateral?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Definition of Default (CRR Article 178) – Application of contagion and the 20% “significant part” threshold in the presence of joint credit obligations where default is applied at facility level

When the Definition of Default for retail exposures is applied at facility level, how should institutions apply the contagion and pulling effects set out in Article 178 CRR and EBA/GL/2016/07 in the presence of joint credit obligations, given that paragraphs 96–99 are articulated for obligor level default, while Article 178 CRR allows default recognition at facility level. In particular: Should a joint obligor (i.e. a specific set of obligors jointly liable) be treated as a separate obligor for the purposes of assessing contagion and the “significant part” (20%) threshold? How should contagion be assessed between:  joint credit obligations of the same set of obligors, individual exposures of the obligors participating in the joint obligation, and other joint credit obligations of those individual obligors with different counterparties, where default is recognised at facility level (including defaults identified through indications of unlikeliness to pay)? How should this be applied in practice for the 3 illustrative examples given?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2016/07 - Guidelines on the application of the definition of default under Article 178 CRR

Application of the currency mismatch treatment to self-employed individuals (natural persons carrying out an economic activity) under Article 123a CRR.

Does the currency mismatch treatment set out in Article 123a of Regulation (EU) No 575/2013 (CRR) apply to exposures to self-employed individuals (natural persons carrying out an economic activity), where such individuals are natural persons that meet the criteria of Article 123 CRR, even if they are considered SMEs in accordance with Article 5(9) of CRR?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Assigning risk-weight to a credit facility where the drawdown is contingent on non-credit risk related conditions that are required to be met by the obligor prior to any initial or subsequent drawdown and where the conditions for the drawdown are not met.

What risk-weight should be assigned to a credit facility where the drawdown is contingent on non-credit risk related conditions that are required to be met by the obligor prior to any initial or subsequent drawdown and where the conditions for the drawdowns are not met per the reporting date?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Treating lease exposures as collateralised under the F-IRB approach

Is a permission of the competent authority under Article 199(6) of the CRR required for treating lease exposures as collateralised under the F-IRB approach if the lease object corresponds to other physical collateral?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Incorporation of historical data from integrated entities when historical information is not representative of current underwriting standards

Should an institution incorporate historical default data from acquired or merged entities into its IRB model estimates for PD, LGD, and CCF when calculating RWA for the acquiring institution’s exposures originated before and after the merger? 

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures

US Hard test: adequacy of considering US charge-off rates corresponding to loss rates for exposures secured by residential property or commercial immovable property situated within the territory of the US

May institutions in accordance with Article 199 (4a) of Regulation (EU) No 575/2013 (CRR) apply the derogations  from point (b) of paragraph 2 of Article 199 CRR, as referred to in paragraphs 3 and 4 of Article 199 CRR, for residential / commercial immovable property situated within the territory of the US, based on (adjusted) US charge-off rates as published by the Board of Governors of the Federal Reserve System (US), retrieved from FRED, Federal Reserve Bank of St. Louis? 

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Use of short-term issuer credit assessments under Article 131

May short-term issuer ratings be used to derive risk weights for unrated short-term exposures in the context of Article 131 CRR?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Alternative treatment and SME support factor

If an institution uses the alternative treatment i CRR3 article 230 (4), does the exposure then qualify to use the SME supporting factor?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Clarification on the application of Article 215.2(b) of the CRR

Can guarantees issued by a central government for residential mortgages, that covers losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, be used for unfunded credit protection if the final guarantee value is determined based on the residual value between an executive sale of underlying residential mortgage collateral and a max guaranteed amount?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Calculation of the unmargined exposure value for a netting set with multiple margin agreement or including both transaction subject to a margin agreement and transaction not subject to a margin agreement

How to calculate the capped exposure value, i.e., the exposure value of the netting set in the event that it is not subject to any type of margin agreement, when there are multiple margin agreements applicable to this netting set or when this netting set includes both transactions subject to a margin agreement and transactions not subject to a margin agreement? For the calculation of the unmargined value, should all deals be included in a single sub-netting set (the one containing contracts not subject to margining) and not divided as required by paragraph 4 of Article 274, or should the sub-netting sets remain separate and their value be calculated as if they were unmargined?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

EBA publication of loss rates for Swiss residential and commercial property under CRR Articles 125 and 126.

Will the EBA publish loss rate data for Swiss residential and commercial property markets to enable institutions to apply preferential risk weights under Articles 125 and 126 CRR? If yes, what is the expected timeline?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Clarification on the relationship between Margin of Conservatism (MoC) and rating/calibration philosophy (PIT vs TTC) under EBA Guidelines on PD and LGD estimation (EBA/GL/2017/16)

According to the EBA Guidelines on PD and LGD estimation (EBA/GL/2017/16), the Margin of Conservatism (MoC) aims to address uncertainty arising from data and methodological deficiencies, changes in underwriting standards or risk appetite, and general estimation error. The Guidelines describe the three MoC categories (A, B, C) and the principles for quantification, but they do not explicitly refer to any link between MoC and the chosen rating philosophy (Point-in-Time vs Through-the-Cycle) or calibration philosophy. Could you please clarify whether the regulator expects the MoC concept to be aligned with the institution’s PIT/TTC philosophy, or whether MoC is entirely independent of the rating/calibration philosophy?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures

Obligations in Equity exposures of Article 133 (1) (c) (i) CRR

Does the term “obligation” in Article 133 (1) (c) (i) CRR refer to the principal amount, or does it also refer to the interest payment solely? 

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Umgang mit unwiderruflichen Zeichnungszusagen für Fondsanteile im Kreditrisiko Kurzbeschreibung: Zuordnung und Risikogewichtung von Zeichnungszusagen in den Phasen der Fondsauflegung

Im Rahmen der Abbildung unwiderruflicher Zeichnungszusagen für Fondsanteile in unserem Spezialfonds stellen sich uns folgende Fragen:1.    In welcher Forderungsklasse des Kreditrisikos nach 575/2013 der CRR (CIU gem. Art. 132 oder Unternehmen gem. Art. 122) sind unwiderrufliche Zeichnungszusagen während der Phase 3(Auflegung des Sondervermögens) sowie während der Phase 4 (nach Auflegung des Sondervermögens) zuzuordnen?2.    Mit welchem Risikogewicht sind diese Zusagen in den jeweiligen Phasen zu bewerten? 

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)

Recognition of FX hedging on loan collateral value for volatility adjustments for currency mismatch

In case of a loan secured by financial collateral where the currency of the loan differs from the currency of the collateral, the FX risk is hedged by a financial instrument (cross-currency swap) which proceeds are pledged by the obligor to the lending institution. Such cross-currency swap hedge allows the lending institution to offset any loan collateral value decrease due to a depreciation of the collateral’s currency, thus neutralising any effect from the currency mismatch between the currency of the loan and the currency of the collateral. In this case, is it possible to assimilate for the purpose of article 223(1) of CRR that the collateral is denominated in the same currency as the loan (implying that no volatility adjustments for currency mismatch would apply) ?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

Application of obligations relating to the default to ancillary services companies (such as operation leasing entities)

Is it necessary to apply in operating leasing entities the obligations of monitoring and controlling risks relating to the new definition of default (forbearance, early warning, etc.)?

Legal act: Regulation (EU) No 575/2013 (CRR)
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

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