The interpretation of Article 131 of the CRR raises the question of whether short-term issuer ratings may be used to derive short-term risk weights for unrated short-term exposures (the latter understood as exposures without a specific rating, regardless of whether an issuer rating exists). 

Article 140 CRR clearly specifies that a short-term credit assessment applies solely to the particular item to which it refers. In the same vein, Q&A 2019_4942 CRR emphasizes that “short-term credit assessments may only be used for short-term asset and off-balance sheet items constituting exposures to institutions and corporates and applies only to the item the short-term credit assessment refers to”. Similarly, CRE21 of the Basel framework states: “For risk-weighting purposes, short-term ratings are deemed to be issue-specific. They can only be used to derive risk weights for exposures arising from the rated facility. They cannot be generalised to other short-term exposures, except under the conditions of CRE21.18”

However, the wording of Article 131 CRR could be interpreted as applying to “exposures to institutions for which a short-term issuer rating exists and exposures to corporates for which a short-term issuer rating exists,” with the short-term issuer rating understood as covering all exposures of the institution or corporate. This creates potential ambiguity, as a short-term issuer credit assessment might be misinterpreted as extending to all short-term exposures of that issuer, rather than being confined to the specific exposure explicitly assessed.

This interpretation may also seem to be supported by Article 139(2) CRR, which refers to the possibility that a general credit assessment (without specifying whether it is short- or long-term) may, in certain cases, be applied to an item that does not itself have a rating. 

As a counterargument to this interpretation, Article 120(3) CRR provides guidance on the application of Article 131 CRR. This provision makes clear – explicitly and implicitly – that Article 131 CRR refers to issue- or exposure-specific ratings, and not to general short-term issuer ratings. It therefore excludes the use of general short-term issuer ratings, confirming that Article 131 CRR can only be applied with specific issue ratings.

For example, a short-term exposure to a rated institution with a residual maturity of more than three months, and without a specific short-term assessment for that exposure, should be assigned a risk weight in accordance with Article 120(1) CRR, not under Article 131 CRR, even if a short-term issuer rating exists.

In this context, we are seeking clarification on whether short-term issuer ratings may be used to derive risk weights for unrated short-term exposures.