Question ID:
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Supervisory reporting - COREP (incl. IP Losses)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions
Annex I, C 07.00/C08.01 and Annex II section 3.2.5
Disclose name of institution / entity:
Type of submitter:
Credit institution
Subject Matter:
CRM substitution in case of equal risk weight

Should Credit Risk Mitigation with substitution effects on the exposure be applied (and presented in COREP) in case of an original exposure subject to unfunded credit protection (meeting all applicable eligibility requirements) where the risk weight/risk-weighted exposure amount remains equal after the substitution?

Is there any difference depending on the approach? (SA/FIRB/AIRB)

Background on the question:

Article 193(1) CRR states, as a general principle for Credit Risk Mitigation (CRM), that no exposure in respect of which an institution obtains CRM shall produce a higher risk-weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which an institution has no CRM.

‘Credit risk mitigation’ itself is defined in CRR art. 4(1)(57): means a technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold.

In Annex II (to Regulation 2021/451) for templates C 07.00 and C 08.01 / C 08.02 in the instructions for the columns ‘Credit risk mitigation (CRM) techniques with substitution effects on the exposure’ (columns 0050-0100 in C07.00) and the columns ‘Credit risk mitigation (CRM) techniques with substitution effects on the exposure’ (columns 0040-0080 in C08.01/02), the following instruction is included: 'Credit risk mitigation techniques as defined in Article 4(1), point (57) of Regulation (EU) No 575/2013 that reduce the credit risk of an exposure or exposures via the substitution of exposures as described below in 'Substitution of the exposures due to CRM'.'

We observe some different interpretations which appears to result from the interpretation of “that reduce the credit risk”. The question is whether this “reduce the credit risk” should be read in a more broad interpretation of credit risk, i.e. that the credit risk has been reduced as a result of the institution being able to claim from the guarantor in case of a default of the original obligor/exposure. Or that it should be read in a way that the risk-weighted exposure amount or expected loss amount should be reduced.

Date of submission:
Published as Rejected Q&A
Rationale for rejection:

This question has been rejected because the issue it deals with is already explained or addressed in Article 193(1) of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 (Capital Requirements Regulation or CRR2). For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.

Rejected question