Question ID
2025_7382
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
223
Paragraph
4
Subparagraph
(b)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Name of institution / submitter
Kurt Lund Accounting
Country of incorporation / residence
Sweden
Type of submitter
Accounting firm
Subject matter
AIRB combined with Financial Collateral Comprehensive Method
Question

Article 223 para 4 subpara (b) indicates that banks using the A-IRB approach can also utilize the Financial Collateral Comprehensive Method (FCCM). Does the EBA agree with this?  

Background on the question

According to CRR article 108 institutions using the AIRB approach may take into account the effect of funded credit protection according to chapter 3 whereas institutions using the FIRB approach may take into account the effect of funded credit protection according to chapter 4. Given that the FCCM method is placed within chapter 4 it was always our assumption that the FCCM method could only be utilized by institutions using the Foundation approach (and the standardized approach) and not by institutions using the AIRB approach with own estimates of LGD and CCF. However the CRR3 revised text in article 223 para 4 (b) mentions that institutions using IRB-CCF must set these to 100% instead of using own estimates of CCF according to article 166 (8), (8a) and (8b) if and when they are using the FCCM method. Given that IRB-CCF is exclusively an approach that can be used by institutions using the AIRB approach it must therefore be deduced that institutions using AIRB with own estimates of LGD and CCF can also utilize the FCCM method despite the fact that it is mentioned in chapter 4 and not in chapter 3.  

Submission date
Final publishing date
Final answer

In accordance with Article 108(1) of the CRR, institutions applying the Standardised Approach or the IRB Approach without using own estimates of LGD for an exposure may recognise any available funded credit protection (FCP) pursuant to Chapter 4 of Part Three Title II of that Regulation. By contrast, in accordance with Article 108(2) CRR, institutions applying the IRB Approach using own estimates of LGD for an exposure may take into account the effect of funded credit protection in accordance with Chapter 3 of Part Three Title II of the CRR. With Regulation (EU) 2024/1623, an exemption to this general treatment was introduced in Article 161(7) CRR. Under that exemption, an institution using own estimates of LGD for a given type of unsecured exposures to corporates, regional governments and local authorities or public sector entities, which is not able to take into account the effect of the FCP securing one of those exposures in the own estimate of LGD due to lack of data on recoveries for that FCP, is allowed to derive the LGD for such an exposure by combining the institution’s own estimate of LGD for unsecured exposures with the LGD for the secured part of the exposure determined for the respective type of FCP in accordance with Chapter 4 of Part Three Title II of the CRR.

The reference to IRB-CCF in point (b) of Article 223(4) CRR, which was also introduced by Regulation (EU) 2024/1623, therefore exclusively refers to exposures, which are subject to that exemption, whereas the Financial Collateral Comprehensive Method remains inapplicable for other exposures for which an institution is using own estimates of LGD.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

Disclaimer

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