For the exposure value determination under the Credit Risk Standardised Approach (CRSA), Article 111 (1) CRR stipulates that the “exposure value of an off-balance sheet item listed in Annex I shall be [a further specified] percentage of its nominal value after reduction of specific credit risk adjustments and amounts deducted in accordance with point (m) of Article 36(1)”. For the exposure value determination under the Advanced Internal-Ratings Based Approach (A-IRBA), Article 166 (8) CRR refers to the “committed but undrawn amount multiplied by a conversion factor”. Article 4 (1) point (56) CRR defines the term ‘conversion factor’ as “the ratio of the currently undrawn amount of a commitment that could be drawn and that would therefore be outstanding at default to the currently undrawn amount of the commitment, the extent of the commitment being determined by the advised limit, unless the unadvised limit is higher.” Given that a “commitment” requires a legally binding contractual arrangement that has been offered by the institution and accepted by the client to extend financing, purchase assets or issue guarantees, this relates to constellations where there is a contractual agreement that has been entered into by the institution and the client under which the institution is obliged to provide financing, whereas the maximum amount/limit of the financing has not been agreed with, and communicated to the client. We understand this to be in line with paragraph 71 of EBA’s policy advice on the Basel 3 reforms on credit risk, according to which a typical example of a committed facility with unadvised limit shall be an overdraft “where the contractual arrangement explicitly permits overdrafts and specifies the interest rate for such overdrafts but without quantifying the maximum possible overdraft. Such included overdraft facilities have been accepted by the client when accepting the offered contractual arrangement.” With regards to committed limits, the definition of conversion factor in Art. 4 (1) point (56) CRR, refers to the “extent of the commitment being determined by the advised limit, unless the unadvised limit is higher”. The ECB Guide to internal models (paragraph 127 of the ECB Guide to internal models, risk-specific chapters, Chapter Credit Risk) repeats this rule, however, specifies that this “higher (unadvised) credit limit may be disregarded if its availability is subject to a further credit assessment by the institution, as long as this additional assessment includes a re-rating or a confirmation of the rating of the obligor.” In practice, an on-demand re-rating or an explicit confirmation of the rating of the obligor prior to each potential drawing (besides the normal regular re-rating process) would be extremely onerous for many customer types and not feasible in a timely manner. This is because many rating methods have a certain amount of manual input (expert judgements) or allow manual overrides. Therefore, we propose to clarify that an on-demand re-rating or a confirmation of the rating of the obligor is not mandatory for the institution’s required credit assessment prior to each drawing. Rather, for this credit assessment, it is sufficient if the Bank approves each additional drawing by the obligor on an individual basis by, for example, assessing whether there are indications of deterioration of the obligor’s creditworthiness. This would be in line with the EBA Q&A ID 2017_3246 since the EBA also uses the terms ‘bank’s approval’ and ‘creditworthiness’ and does not require a re-rating or an explicit confirmation of the rating of the obligor: “As an illustration, framework arrangements would not give rise to off-balance sheet items if the institution needs not only to approve the initial and each subsequent drawdown by the client but it has also the complete discretion on whether to give its approval regardless of the fulfilment by the client of the conditions set out in the arrangement, since no drawdown would be possible without a prior and specific approval of the institution.[…]” As outlined above, we believe that this credit assessment prior to each drawdown by the obligor is only required for committed facilities with unadvised limits. If such a process exist, these higher committed unadvised limits can be disregarded when determining the exposure value. This view applies to retail as well as non-retail obligors.