Question ID:
2021_5756
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Large exposures
Article:
402
Paragraph:
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
-
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Definition of exposures arising from mortgage lending
Question:

Which value of the exposure is the amount that can be reduced, when referring to "the pledged amount of the market value or mortgage lending value of the property concerned, but by not more than 50 % of the market value or 60 % of the mortgage lending value”?

Background on the question:

Article 402 (1) CRR notes: “…For the calculation of exposure values for the purposes of Article 395, institutions may, except where prohibited by applicable national law, reduce the value of an exposure or any part of an exposure that is fully secured by residential property in accordance with Article 125(1) by the pledged amount of the market value or mortgage lending value of the property concerned, but by not more than 50 % of the market value or 60 % of the mortgage lending value in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, provided that all the following conditions are met….”

There is a slight dispute, as to the phrase “by the pledged amount of the market value or mortgage lending value of the property concerned, but by not more than 50 % of the market value or 60 % of the mortgage lending value”.

In the following example, which is the amount that can be reduced, and subsequently, which is the Exposure value after Credit risk mitigations and other exemptions, according to the above Article?

Example:

Exposure value: 1.300.000€
Pledged amount: 1.500.000€
Market value: 2.500.000€

Case1:
1st step: Credit risk mitigations = Minimum between i) pledged amount of 1.500.000€ and ii) Market Value of 2.500.000€ after 50% haircut => 1.250.000€
2nd step: Exposure value after exemptions and CRMs = Original Exposure value of 1.300.000€ – Eligible CRM amount 1.250.000€ = 50.000€

Case2:
1st step: Credit risk mitigations = Minimum between i) pledged amount of 1.500.000€ and ii) Market Value of 2.500.000€ => 1.500.000€
2nd step: 1.500.000€ * 50% = 750.000€ 3rd step: Exposure value after exemptions and CRMs = Original Exposure value of 1.300.000€ – Eligible CRM amount 750.000€ = 550.000€

Date of submission:
23/02/2021
Status:
Question under review
Answer prepared by:
Answer prepared by the EBA.
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