Question ID
2022_6644
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Large exposures
Article
403
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Type of submitter
Credit institution
Subject matter
Use of the substitution approach for retail exposures treated under IRB with a guarantee (unfunded credit protection)
Question

The institution has exposures to retail clients (mortgage loans) that are treated under IRB. Some of these exposures have a guarantee (unfunded credit protection) that is eligible in accordance with the relevant requirements of credit risk mitigation.

The institution applies Article 163 (4) and 164 (2) and adjusts PD or LGD estimates subject to requirements as specified in Article 183(1), (2) and (3) and the permission of the competent authorities.

Does the institution has to use the substitution approach for this guarantee for large exposures (and thus present the counterparty giving the guarantee, and the guaranteed amount given as indirect exposure as financial guarantee under the large exposure reporting) as indicated in Article 403 (1)a?

Background on the question

Under the IRB approach, the PD or LGD for retail mortgage loan exposures is adjusted for received guarantee (of the Dutch Waarborgfonds Eigen Woningen with the Nationale Hypotheek Garantie) which is deemed as eligible. Therefore for credit risk calculation we deem that the guarantee is an eligible form of CRM and Article 399 (1) is applicable for large exposures.

Article 399 (2) refers to Artcile 403 for unfunded credit protection and to Article 402 for mortgage loans. However Article 399 (3) states that 'credit risk mitigation techniques which are available only to institutions using one of the IRB approaches shall not be used to reduce exposure values for large exposure purposes, except for exposures secured by immovable properties in accordance with Article 402'.

Therefore it is not entirely clear if for exposures treated under IRB with a guarantee for which Article 163 (4) and 164 (2) is applied, the substitution approach as described under Article 403 is to be used for large exposures.

Submission date
Rejected publishing date
Rationale for rejection

This question has been rejected because the issue it raises is not material i.e. it does not raise a prudential (in a wider sense), payments, consumer protection, resolution or other regulatory issue that is within the EBA’s remit.

The Single Rule Book Q&A tool has been established to provide explanations and non-binding interpretations on questions relating to the practical application or implementation of the provisions of legislative acts referred to in Article 1(2) of the EBA’s founding Regulation, as well as associated delegated and implementing acts, and guidelines and recommendations, adopted under these legislative acts.

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Status
Rejected question