Skip to main content
European Banking Authority logo
  • Extranet
  • Log in
  • About us
    Back

    About us

    The EBA is an independent EU Authority.  We play a key role in safeguarding the integrity and robustness of the EU banking sector to support financial stability in the EU.

    Learn more
      • Mission, values and tasks
      • Organisation and governance
        • Governance structure and decision making
        • EBA within the EU institutional framework
        • Internal organisation
        • Accountability
      • Legal and policy framework
        • EBA regulation and institutional framework
        • Compliance with EBA regulatory products
      • Sustainable EBA
      • Diversity and inclusion
      • Careers
        • Vacancies
        • Meet our team
      • Budget
      • Procurement
    Close menu panel
  • Activities
    Back

    Activities

    To contribute to the stability and effectiveness of the European financial system, the EBA develops harmonised rules for financial institutions, promotes convergence of supervisory practices, monitors, and advises on the impact of financial innovation and the transition to sustainable finance.

    Start here
      • Single Rulebook
      • Implementing Basel III in Europe
      • Supervisory convergence
        • Supervisory convergence
        • Supervisory disclosure
        • Peer Reviews
        • Mediation
        • Breach of Union Law
        • Colleges
        • Training
      • Direct supervision and oversight
        • Markets in Crypto-assets
        • Digital operational resilience Act
      • Information for consumers
        • National competent authorities for consumer protection
        • How to complain
        • Personal finance at the EU level
        • Warnings
        • Financial education
        • National registers and national authorities responsible for handling complaints related to credit servicers
        • Frauds and scams
      • Research Workshops
      • Ad hoc activities
        • Our response to Covid-19
        • Brexit
    Close menu panel
  • Risk and data analysis
    Back

    Risk and data analysis

    To ensure the orderly functioning and stability of the financial system in the European Union, we monitor and analyse risks and vulnerabilities relevant for the regulation of banks and investment firms. We also facilitate information sharing among authorities and institutions through supervisory reporting and data disclosure.

    Learn more
      • Risk analysis
        • 2024 EU wide transparency exercise
        • EU-wide stress testing
        • Risk monitoring
        • Thematic analysis
      • Remuneration and diversity analysis
      • Pillar 3 data hub
      • Reporting
        • Reporting frameworks
        • Reporting Time Traveller
        • DPM data dictionary
        • Integrated reporting
        • Joint Bank Reporting Committee (JBRC)
      • Data
        • Registers and other list of institutions
        • Guides on data
        • Aggregate statistical data
        • Secondary reporting: data from Competent Authorities to the EBA
        • Data analytics tools
    Close menu panel
  • Publications and media
    Back

    Publications and media

    Communicating to all our audiences in the most effective way and using the most appropriate channels is crucial for us. Through our publications, announcements, and participation in external events, we are committed to reaching out to all our stakeholders to report about our policies, activities, and initiatives.

    Learn more
      • Publications
        • Guidelines
        • Regulatory Technical Standards
        • Implementing Technical Standards
        • Reports
        • Consultation papers
        • Opinions
        • Decisions
        • Staff papers
        • Annual reports
      • Press releases
      • Speeches
      • Interviews
      • Events
      • Media centre
        • Media gallery
        • Media resources
    Close menu panel

Breadcrumb

  1. Home
  2. Single Rulebook Q&A
  3. 2025_7357 Calculation of risk-weighted exposure amounts for off-balance exposure in case of Unfunded Credit Protection (UFCP)
Question ID
2025_7357
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
193
Subparagraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Type of submitter
Credit institution
Subject matter
Calculation of risk-weighted exposure amounts for off-balance exposure in case of Unfunded Credit Protection (UFCP)
Question

What is the correct treatment in cases where the consideration of CRM according to articles 235, 235a or 236 leads to higher calculated risk-weighted exposure amounts than those calculated without considering CRM, even when the risk weight of the protection provider is lower? 

Background on the question

Under Article 193(1), it is stipulated that “no exposure in respect of which an institution obtains credit risk mitigation 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 credit risk mitigation”. 

However, for off-balance exposures with partial unfunded credit protection (except those treated under A-IRB where direct exposures to the protection provider are treated under IRB), and where the potential amount of unfunded credit protection (UFCP) is small relative to the estimated unconverted off-balance sheet exposure, the risk-weighted exposure amount calculated without considering credit risk mitigation exceeds that calculated according to articles 235, 235a or 236 (as applicable), whereas these articles stipulate that institutions “shall calculate the risk-weighted exposure amounts” in accordance with the given formulae.

This situation arises from the requirement to apply a 100% Credit Conversion Factor (CCF) for the calculation of the protected and unprotected parts of an exposure under Articles 235, 235a, and 236, irrespective of the CCF values prescribed under Articles 111 and 166. 

Therefore, in such cases it is unclear how institutions should consider UFCP in the calculation of risk-weighted exposure amounts without contradicting article 193(1).

In more detail, the risk-weighted exposure amount for a direct exposure to the obligor without considering CRM can be written as

RWAobligor = r x (Eon + CCF x Eoff)

whereas the risk-weighted exposure amount for an exposure accounting for the effect of UFCP can be written as

RWACRM = r x (Eon + 100% x Eoff – GA) + g x GA

(in the case that Eon + 100% x Eoff > GA), where in either case GA, Eon, Eoff, g and r represent the amount of credit protection, the on- and off-balance exposure amount, the risk weight applicable to a direct exposures to the protection provider, and the risk weight of exposures to the obligor, respectively.

Thus, for the risk weight of the obligor without CRM (RWAobligor) to be greater than the risk weight when a cover is considered (RWACRM), in accordance with article 193(1):

RWAobligor > RWACRM

↔ r x (Eon + CCF x Eoff) > (Eon + 100% x Eoff  – GA) + g x GA

↔ r x CCF x Eoff > r x Eoff – GA x (r – g)

↔ GA > (100% – CCF) x Eoff x r / (r – g)

Submission date
25/02/2025
Rejected publishing date
08/07/2025
Rationale for rejection

This question has been rejected because it is considered that EBA guidance or clarification is not needed with regard to the issue that it raises. For example, this can be the case where it is considered that the existing regulatory framework is sufficiently clear and unambiguous, or where different practices may be possible but it is not currently necessary to harmonise these further through the Q&A process.

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.

For further information on the purpose of this tool and on how to submit questions, please see “Additional background and guidance for asking questions”.

Status
Rejected question

Footer

EUROPEAN BANKING AUTHORITY

Our mission is to contribute to the stability and effectiveness of the European financial system through simple, consistent, transparent, fair regulation and supervision that benefits all EU citizens.


UE logoAn agency of the EU

EU Agencies Network logoEU Agencies Network

EMAS logoSustainable EBA

Contact us

  • Contacts
  • Ask a general question
  • Send a press query
  • Ask a regulatory question
  • Request access to documents
  • File a complaint
  • Whistleblower reports

Stay up to date with our work

  • Subscribe to our email alerts
  • News & press RSS feed

Follow us on Social media

  • Bluesky
  • LinkedIn
  • X
  • YouTube

Find out about us

  • The EBA at a glance
  • Vacancies
  • Privacy policy
  • Legal notice
  • Cookies policy
  • Frauds and scams

Explore related sites

  • EIOPA
  • ESMA
  • ESRB
  • CEBS archive