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Q&As refer to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.

Please note that the Q&As related to the supervisory benchmarking exercises have been moved to the dedicated handbook page. You can submit Q&As on this topic here.

List of Q&A's

Credit derivatives on CLO in SA-CCR

Should a credit derivative with underlying a CLO (Credit Loan Obligation) be treated as multi-name under Article 280c(1) because the underlying is a pool of loans or single name because the issuer is unique, SPV, or can the tranche be viewed as a whole?

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

Non-applicability of the CRR (Capital Requirements Regulation) regarding OCCPs

According to Article 111 CRR, OCCPs must be included in the calculation of the Total Capital Ratio (TCR) under Pillar I, even though their economic risk is fully mitigated by the DvP mechanism. Eurex Clearing AG only includes OCCPs in their balance sheet, as per accounting standards. While the risk of OCCPs is covered in the CCP risk management framework through margins and other lines of defense, they cannot be mitigated through collateralization or netting under the CRR framework.    Regarding the information in section 1 and 2, ECAG would like to inquire whether the OCCPs can be exempted from the application of Article 111 CRR.

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

Meaning of “without automatic rollover” in the definition of trade finance

The definition of trade finance refers to “financial products of fixed short-term maturity, generally of less than one year, without automatic rollover”. Does a financial product meet the aforementioned maturity condition that has a maturity not exceeding one year (i.e. typically less than one year or a maximum of one year) and that is repeatedly extended by another 365 days but where the bank has the contractual right to unilaterally terminate the product prior to any extension? 

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

Fulfilment of “fixed short-term maturity, […], without automatic rollover” for trade finance product bank guarantees (“Guarantee”) in case of a contractually agreed clause between the issuing bank and its client instructing the issuing bank to issue the Guarantee (“Instructing Party”) that allows the issuing bank to effectively exit the risk position within a contractually agreed fixed timeframe

  The definition of trade finance refers to “financial products of fixed short-term maturity, generally of less than one year, without automatic rollover”. We would like to confirm that an open-ended Guarantee, i.e. a guarantee that does not provide for a fixed maturity date, meets the aforementioned definition of trade finance, in case the issuing bank and the Instructing Party agree on contractual provisions that allow the issuing bank to effectively exit the risk position incurred via the Guarantee. In this specific case the issuing bank conducts a regular bank internal review regarding the Guarantee and may – in case it deems this appropriate on the basis of its review – on the basis of a contractual arrangement between the bank and the Instructing Party, at its full discretion, require the Instructing Party to provide the issuing bank within a contractually agreed fixed time period with either a counter-guarantee from another bank in favour of the issuing bank, cash cover collateral or a substitution of the Guarantee by ensuring that another bank issues a Guarantee replacing the issuing bank’s Guarantee. 

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

Assignment of a 0% risk weight to equity exposures to subsidiaries that are not institutions

Can a risk weight of 0% be assigned pursuant to Article 113(6) CRR to an equity exposure to a subsidiary which is not an institution, provided that all conditions in Article 113(6)(a) to (e) are met? 

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

Sovereign credit assessment to apply to exposure of central government, central bank and government-100%-owned central bank.

1. Is sovereign credit assessment of a country by a nominated ECAI available for assigning a corresponding risk weight to exposures to the central government or central bank of this country? 2. Is sovereign or central government credit assessment applicable to central bank when a central bank is 100% owned by central government?

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

Automatic cancellation of commitments qualified as unconditionally cancellable commitments (UCC)

If contractual arrangements of a commitment provide for automatic cancellation due to deterioration in a borrower’s creditworthiness, but the cancellation is not always automatic considering client relationship, can this commitment be considered as an unconditionally cancellable commitment (UCC)?

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

Definition of default for open-end investment funds

Should an open-end investment fund be considered an obligor under Art. 178 (1) CRR, irrespective of whether it has legal personality under a Member States’ regulations on investment funds?

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

Maturity calculation under IRB for undrawn credit facility

Does Article 162(2)(a) of Regulation (EU) No 575/2013 (CRR) apply to exposures in the form of undrawn credit facilities as the only contractual cash flow payments for the undrawn credit facility are fee-related?

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

Calculating exposure value to assign risk weight to defaulted items having balance and off-balance sheet part

When calculating a coverage of SCRA to unsecured part of the exposure that has both balance and off-balance sheet part, in order to determine risk weight of  150% or 100%, shall an institution calculate the exposure value according to Article 111 point 1 of the CRR (i.e. for off-balance sheet part after applying credit conversion factor (CCF))?

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

ITS ESG P3 - Annex II, Templates 10

1. Are general-purpose loans to pureplay companies in the scope of Template 10? 2. How sustainability linked loans with multiple sustainable performance targets be treated?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2022/2453 - ITS on ESG disclosures

CCR treatment of exposures arising from centrally cleared transactions - indirect clearing flows

Does an institution which is a client of a clearing member or a lower-level client in a multi-level client structure (institution > intermediary/higher-level client > clearing member > central counterparty) need to verify that Art. 305 (2) or (3) conditions are met at every level of the structure to apply Art. 306 (1) CRR, which might also entail zeroing out the exposure value arising from the transaction between the institution and the clearing member or the higher-level client if the institution is acting as a financial intermediary between a client and a CCP? Guidance is sought on 4 possible clearing flows: Indirect clearing flows (clients’ transactions and institution’s own transactions) Client > institution > clearing member > CCP Institution > clearing member > CCP Multi-level indirect clearing flows (clients’ transactions and institution’s own transactions) Client > institution > intermediary/higher-level client > clearing member > CCP Institution > intermediary/higher-level client > clearing member > CCP

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

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  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting of Institutions

Use of the last available data for risk quantification sample

Given the requirements of Articles 179(1)(a) and 175(4)(b) CRR, in case of a model development, should the last available one-year snapshot be used for risk quantification purposes (i.e., for the computation of the long-run average default rate) or be set aside for out-of-time validation tests?

  • 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

Consideration of default dependencies for MoC C quantification

Do financial institutions have to incorporate the variability of the macro-economic factor (of the Vasicek model) into the quantification of the MoC C? In other words, do financial institutions have to incorporate default dependencies between obligors into the MoC C quantification?

  • 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

Explanation regarding the term "non-reducible"

Could you please explain what does mean the term "nonreducible" in the context of life insurance policy pledged to a lending institution?

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

Clarification on treatment of repurchase agreements and reverse repurchase agreement, as well as securities lending/borrowing of the banking book and of the trading book under the counterparty credit risk and the treatment of these same transactions under standardised approach of credit risk.

A securities repurchase (repo) is an agreement whereby a transferor agrees to sell securities to a transferee at a specified price and repurchase the securities on a specified date and at a specified price. Since the transaction is regarded as a financing (liability item) of the transferor for accounting purposes, the securities remain on the balance sheet of the transferor. As for the transferee the transaction is treated as a collateralized loan (asset item) for accounting purposes. When referring to “repurchase agreements” in art. 271 CRR, does it applies both to transferor and transferee exposures (in a manner analogous to securities lending transactions on which specific mention to both parties of a transaction –lending and borrowing- is made)? In essence, counterparty credit risk is a bilateral risk, and as such it seems reasonable to capture the risk of both counterparties, even if a transferor and a securities lender will both have accounted the operation as a liability item. Shall the institutions include all repurchase agreements and securities lending/borrowing for counterparty credit risk capital requirements purposes regardless of whether they have been accounted for within the trading or the banking book? According to article 271 (2) an institution shall include the exposure value of repurchase transactions and securities lending/borrowing for counterparty credit risk capital requirements purposes, without making any distinction as to whether they belong to the banking or to the trading book. The exposure value shall be calculated either in accordance with Chapter 4 or Chapter 6 of Title II. However, article 92 (3) (f) states that only SFT transactions of the trading book exposures are subject to counterparty risk capital requirements. Although it could be also interpreted that SFT transactions and agreements of the banking book are also subject to counterparty risk capital requirements according to article 92 (3) (a) as it refers to the whole Title II (including Chapter 6 –counterparty credit risk-). To make things even more confusing, according to article 111 (2) and article 166 (7) the exposure value of any repurchase agreements and securities lending/borrowing shall be included for credit risk capital requirements purposes and it shall be calculated either in accordance with Chapter 4 or Chapter 6. Following the argumentation set out above, the credit risk related to the counterparty in repurchase agreements and securities lending/borrowing of the banking book might be captured twice, once under the standardised approach/IRB method scheme (Chapter 2 or 3) and again under the counterparty credit risk regime (Chapter 6). It does not seem to make sense to ask institutions for capital requirements twice for the same risk concept. Can you please confirm which is the correct treatment for the credit risk related to the counterparty of repurchase agreements and securities lending/borrowing of the banking book? Or do articles 111(2)/116(7) refer to a risk concept different that article 271(2)? Do both parties of a same transaction –transferor and transferee, lender and borrower- have to capture the credit risk related to the counterparty? The same argumentation applies to derivatives, long settlement transactions and marging lending transactions of the banking book.

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

Treatment of repurchase agreements and reverse repurchase agreement, as well as securities or commodities lending/borrowing of the banking book under standardised approach of credit risk.

Shall the transferor of an operation like the one described below include for credit risk capital requirements purposes both the exposure value of the securities sold (asset item) and the financing position (even if it is a liability item), or just the asset item of the securities sold?According to Article 111(2) CRR the exposure value of any repurchase transaction shall be included and be calculated either in accordance with Chapter 4 or Chapter 6 of Title II: does it also refers to the financing position of the transferor (even if it is a liability item)?What is the correct treatment for the financing position of the transferor? are securities also to be included as an exposure value in case the Financial Collateral Simple Method is used?

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

Preferential risk weight for indirect sovereign exposures in the currency of another Member State

May Article 500a be applied to exposure types other than government bond? May Article 500a paragraph 1 also be applied to indirect exposures, when the obligor is classified different from central governments or central banks? If so, the currency constraints imposed by the article 500a have to be referred to the unfunded credit protection of a central governments or central banks?

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