Should the multilateral development banks (MDB) which are not included in Article 117(2) CRR be treated as institution?
If the head office of that MDB is in a non-equivalent jurisdiction Article 107(3), should the exposure to MDB be treated as corporate?
There are MDBs which are not referred to in Article 117(2) CRR. As per Article 117(1), we can treat them MDBs as institution. Now if there is MDB with BBB+ rating (credit quality step 3), which is not referred to in Article 117(2), can be risk weighted at 50% (article 120 paragraph 1), but if the head office (several countries could be involved in MDBs) of the jurisdiction of the exposure is not equivalent as per Article 107(3), the same exposure will be RW at 100% (being corporate). As a MDB can be an effort of several countries, if one of the country is equivalent, in that case what kind of treatment is correct. i.e. do we need to apportion as per the share of the country.
According to Article 117(2) of Regulation (EU) No 575/2013 (CRR), exposures to multilateral development banks referred to in said paragraph shall be assigned a 0% risk weight. Further, according to Article 117(1) CRR, exposures to multilateral development banks which are not referred to in paragraph 2 shall be treated in the same manner as “exposures to institutions” (which is an exposure class) and assigned a risk weight depending on the application of Articles 119 to 121 CRR, except for the preferential treatment related to short-term exposures.
This treatment as “exposures to institutions” shall apply regardless of the (third-) country where the multilateral development bank is located. Article 107(3) of Regulation (EU) No 575/2013 on exposures to third-country investment firms, third-country credit institutions and third-country exchanges does not apply to exposures to multilateral development banks that are considered as institutions.