Question ID
2025_7505
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
Article 111
Paragraph
6
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions
Article/Paragraph
article 111(6)
Type of submitter
Credit institution
Subject matter
Credit Conversion Factor Treatment - Loan Participation Agreements in Unconditionally Cancellable Facilities
Question

For loan participation arrangements where Bank A (the issuing bank) originates loans classified as unconditionally cancellable and applies 0% Credit Conversion Factor (CCF) under CRR Article 111, what is the appropriate CCF treatment for Bank B as the participating bank?
Specifically, should Bank B apply:
- a 0% CCF - consistent with the unconditionally cancellable nature of the underlying loans issued by Bank A
- Standard CCF rates (20% or higher) - based on the participation agreement structure, where Bank B cannot directly exercise the unconditional cancellation rights?

Background on the question

Bank A and Bank B have entered into loan participation agreements where Bank A acts as the originating/issuing bank providing unconditionally cancellable (UCC) loan facilities to borrowers, while Bank B participates in the credit risk on an agreed percentage basis. Bank A has confirmed that it classifies these loan facilities as unconditionally cancellable and therefore applies 0% CCF on all undrawn balances, meaning no risk weight considerations are applied to these exposures. Under the participation arrangement, Bank B shares in the credit risk but cannot directly cancel the underlying facilities - only Bank A retains the unconditional cancellation right over the loans it issues.
The question arises whether Bank B's participation in Bank A's unconditionally cancellable facilities should follow the economic substance of the underlying exposure (0% CCF) or be treated based on Bank B's indirect contractual relationship (standard CCF rates).

Submission date
Rejected publishing date
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, as Article 111(4) CRR is sufficiently clear and unambiguous.

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