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Q&As refer to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.

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List of Q&A's

Non-applicability of the CRR (Capital Requirements Regulation) regarding OCCPs

According to Article 111 CRR, OCCPs must be included in the calculation of the Total Capital Ratio (TCR) under Pillar I, even though their economic risk is fully mitigated by the DvP mechanism. Eurex Clearing AG only includes OCCPs in their balance sheet, as per accounting standards. While the risk of OCCPs is covered in the CCP risk management framework through margins and other lines of defense, they cannot be mitigated through collateralization or netting under the CRR framework.    Regarding the information in section 1 and 2, ECAG would like to inquire whether the OCCPs can be exempted from the application of Article 111 CRR.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_7028
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 01/05/2024

Meaning of “without automatic rollover” in the definition of trade finance

The definition of trade finance refers to “financial products of fixed short-term maturity, generally of less than one year, without automatic rollover”. Does a financial product meet the aforementioned maturity condition that has a maturity not exceeding one year (i.e. typically less than one year or a maximum of one year) and that is repeatedly extended by another 365 days but where the bank has the contractual right to unilaterally terminate the product prior to any extension? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_7012
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 15/04/2024

Fulfilment of “fixed short-term maturity, […], without automatic rollover” for trade finance product bank guarantees (“Guarantee”) in case of a contractually agreed clause between the issuing bank and its client instructing the issuing bank to issue the Guarantee (“Instructing Party”) that allows the issuing bank to effectively exit the risk position within a contractually agreed fixed timeframe

  The definition of trade finance refers to “financial products of fixed short-term maturity, generally of less than one year, without automatic rollover”. We would like to confirm that an open-ended Guarantee, i.e. a guarantee that does not provide for a fixed maturity date, meets the aforementioned definition of trade finance, in case the issuing bank and the Instructing Party agree on contractual provisions that allow the issuing bank to effectively exit the risk position incurred via the Guarantee. In this specific case the issuing bank conducts a regular bank internal review regarding the Guarantee and may – in case it deems this appropriate on the basis of its review – on the basis of a contractual arrangement between the bank and the Instructing Party, at its full discretion, require the Instructing Party to provide the issuing bank within a contractually agreed fixed time period with either a counter-guarantee from another bank in favour of the issuing bank, cash cover collateral or a substitution of the Guarantee by ensuring that another bank issues a Guarantee replacing the issuing bank’s Guarantee. 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_7011
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 15/04/2024

Credit derivatives on CLO in SA-CCR

Should a credit derivative with underlying a CLO (Credit Loan Obligation) be treated as multi-name under Article 280c(1) because the underlying is a pool of loans or single name because the issuer is unique, SPV, or can the tranche be viewed as a whole?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_7030
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/04/2024

Assignment of a 0% risk weight to equity exposures to subsidiaries that are not institutions

Can a risk weight of 0% be assigned pursuant to Article 113(6) CRR to an equity exposure to a subsidiary which is not an institution, provided that all conditions in Article 113(6)(a) to (e) are met? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_6981
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 28/02/2024

Sovereign credit assessment to apply to exposure of central government, central bank and government-100%-owned central bank.

1. Is sovereign credit assessment of a country by a nominated ECAI available for assigning a corresponding risk weight to exposures to the central government or central bank of this country? 2. Is sovereign or central government credit assessment applicable to central bank when a central bank is 100% owned by central government?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2024_6970
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 22/02/2024

Automatic cancellation of commitments qualified as unconditionally cancellable commitments (UCC)

If contractual arrangements of a commitment provide for automatic cancellation due to deterioration in a borrower’s creditworthiness, but the cancellation is not always automatic considering client relationship, can this commitment be considered as an unconditionally cancellable commitment (UCC)?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6936
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 22/02/2024

Consideration of default dependencies for MoC C quantification

Do financial institutions have to incorporate the variability of the macro-economic factor (of the Vasicek model) into the quantification of the MoC C? In other words, do financial institutions have to incorporate default dependencies between obligors into the MoC C quantification?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: EBA/GL/2017/16 - Guidelines on PD estimation, LGD estimation and the treatment of defaulted exposures
  • ID: 2023_6794
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 29/01/2024

Calculating exposure value to assign risk weight to defaulted items having balance and off-balance sheet part

When calculating a coverage of SCRA to unsecured part of the exposure that has both balance and off-balance sheet part, in order to determine risk weight of  150% or 100%, shall an institution calculate the exposure value according to Article 111 point 1 of the CRR (i.e. for off-balance sheet part after applying credit conversion factor (CCF))?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6889
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 15/12/2023

Display of provision during substitution approaches

Due to the future application of the CRR3, the used of the IRB model will be limited. As example, some expositions (Corporates SME especially) considered with IRB method (and so displayed in C08A – CR IRBA form in COREP), are currently guaranteed by an institution or a sovereign which are also today considered with the IRB method. With CRR3, the debtor will probably stay with the IRB method (so still displayed in CR IRBA form in COREP), but there will be an outflow to the CR SA because the Basel method of the guarantor will be standard model. There will be an inflow in CR SA to display the metrics of the expositions after taking into account the characteristics of the guarantor (CRM). Around September 2021, we asked to your team, some precision about the “display of the provision during the substitution approach” under the reference 2021_6220. Our question result from the Q&A 2017_3335 which confirm the possibility to apply the substitution approach when the exposure and the guarantor are treated by the institution under different basel methods. Our Q&A has been rejected considering that the issue it deals with is already explained in section 3.1.1 of Annex II to Regulation (EU) No 2021/451 (ITS on Supervisory Reporting). Without mistake of our part and conversely of your affirmation, we are still considering the display of the provision non taking into account by the Q&A 2017_3335. For reminder, the display of the provision in COREP forms is different according to the Basel method applied: The value is displayed in column 0020 of C07 - CR SA uses the Basel method of the debtor Inversely for the C08 - CR IRB, the value is displayed in column 0290 (as memorandum item) uses the Basel method of the guarantor (if there is any)

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2021/451 – ITS on supervisory reporting of institutions
  • ID: 2023_6739
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 29/09/2023

Calculation of loss given default for fully off-balance exposures in case there are no additional drawings after the default date.

According to point 55 of Article 4(1) of Regulations (EU) No 575/2013 (CRR) ‘Loss given default’ or ‘LGD’ means the ratio of the loss on an exposure due to the default of a counterparty to the amount outstanding at default.   In case the exposure is fully-off balance at the moment of default and there are no additional drawings after default, both the numerator and the denominator of the LGD will be equal to zero. This means that the LGD cannot be calculate using the definition stated above. Should the realized LGD be set equal to zero in this case? 

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2022_6376
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/09/2023

Calculation of amount outstanding at default and loss given default for products in scope of Article 166 (10) of Regulations (EU) No 575/2013 (CRR)

Article 181(1)(a) of Regulations (EU) No 575/2013 (CRR) specifies that LGDs shall be estimated on the basis of the average realized LGD by facility grade or pool using all observed defaults. According to point 55 of Article 4(1) of Regulations (EU) No 575/2013 (CRR) ‘Loss given default’ or ‘LGD’ means the ratio of the loss on an exposure due to the default of a counterparty to the amount outstanding at default.   For the purpose of calculating the realized LGD, how should the amount outstanding at default (and the denominator of LGD) be calculated for exposures in scope of Article 166 (10) of Regulations (EU) No 575/2013 (CRR) that are fully off-balance at the moment of default?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2022_6375
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/09/2023

Clarification on treatment of repurchase agreements and reverse repurchase agreement, as well as securities lending/borrowing of the banking book and of the trading book under the counterparty credit risk and the treatment of these same transactions under standardised approach of credit risk.

A securities repurchase (repo) is an agreement whereby a transferor agrees to sell securities to a transferee at a specified price and repurchase the securities on a specified date and at a specified price. Since the transaction is regarded as a financing (liability item) of the transferor for accounting purposes, the securities remain on the balance sheet of the transferor. As for the transferee the transaction is treated as a collateralized loan (asset item) for accounting purposes. When referring to “repurchase agreements” in art. 271 CRR, does it applies both to transferor and transferee exposures (in a manner analogous to securities lending transactions on which specific mention to both parties of a transaction –lending and borrowing- is made)? In essence, counterparty credit risk is a bilateral risk, and as such it seems reasonable to capture the risk of both counterparties, even if a transferor and a securities lender will both have accounted the operation as a liability item. Shall the institutions include all repurchase agreements and securities lending/borrowing for counterparty credit risk capital requirements purposes regardless of whether they have been accounted for within the trading or the banking book? According to article 271 (2) an institution shall include the exposure value of repurchase transactions and securities lending/borrowing for counterparty credit risk capital requirements purposes, without making any distinction as to whether they belong to the banking or to the trading book. The exposure value shall be calculated either in accordance with Chapter 4 or Chapter 6 of Title II. However, article 92 (3) (f) states that only SFT transactions of the trading book exposures are subject to counterparty risk capital requirements. Although it could be also interpreted that SFT transactions and agreements of the banking book are also subject to counterparty risk capital requirements according to article 92 (3) (a) as it refers to the whole Title II (including Chapter 6 –counterparty credit risk-). To make things even more confusing, according to article 111 (2) and article 166 (7) the exposure value of any repurchase agreements and securities lending/borrowing shall be included for credit risk capital requirements purposes and it shall be calculated either in accordance with Chapter 4 or Chapter 6. Following the argumentation set out above, the credit risk related to the counterparty in repurchase agreements and securities lending/borrowing of the banking book might be captured twice, once under the standardised approach/IRB method scheme (Chapter 2 or 3) and again under the counterparty credit risk regime (Chapter 6). It does not seem to make sense to ask institutions for capital requirements twice for the same risk concept. Can you please confirm which is the correct treatment for the credit risk related to the counterparty of repurchase agreements and securities lending/borrowing of the banking book? Or do articles 111(2)/116(7) refer to a risk concept different that article 271(2)? Do both parties of a same transaction –transferor and transferee, lender and borrower- have to capture the credit risk related to the counterparty? The same argumentation applies to derivatives, long settlement transactions and marging lending transactions of the banking book.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6775
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 27/07/2023

Explanation regarding the term "non-reducible"

Could you please explain what does mean the term "nonreducible" in the context of life insurance policy pledged to a lending institution?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6786
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 20/07/2023

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  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting of Institutions
  • ID: 2023_6829
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 20/07/2023

European Union Allowances (EUA) as credit risk mitigant

Could European Union Allowances (EUA) received by a credit institution as collateral be considered as eligible one from prudential point of view ? If yes, how EUA should be considered ? As financial collateral or as other physical collateral ?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6712
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 29/06/2023

Definition of residential property

I am bringing a point to your notice where in article 4(75) the residential property is defined as a residence which is occupied by the owner or the lessee of the residence, including the right to inhabit an apartment in housing cooperatives located in Sweden. This has led to quite some confusion in my organisation as to what definition applies in other Nordic countries. Given that we have a presence in all Nordic countries, we expect a generic definition which can be consistently applied for the correct treatment of collateral types. These further also impact how the customer segments (rating systems) are defined as according to the regulation the exposure secured by RRE must be excluded when defining thresholds for retail vs non-retail customers. Therefore, I request you to either 1) modify the definition so that it is clearer if the same definition can be applied in all countries, or 2) Remove the specific country name "Sweden" from the definition, or 3) the institutions can follow local FSAs for such definitions, or 4) They can have their own guidelines for such definitions.

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Draft ITS on Supervisory Reporting of Institutions
  • ID: 2023_6761
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/05/2023

Opinion to Question 2020_5551, whether an institution is allowed to apply the supporting factor for SMEs and the supporting factor for infrastructure projects simultaneously.

A pending Question 2020_5551 asks an opinion whether an institution is allowed to apply the supporting factor for SMEs (Art 501) and the supporting factor for infrastructure projects (Art 501a) simultaneously. I share here my opinion to help the answer, as it would be important to our institution, and I think the answer is simplier than thought suggested on that question. The pending question I am referring to is under the link https://www.eba.europa.eu/single-rule-book-qa/qna/view/publicId/2020_5551

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
  • ID: 2023_6725
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/05/2023

Calculation of the relative threshold in case specific cases.

How should be calculated the relative threshold for a client who has fees or quotes in default arising from off balance sheet exposures?

  • Legal act: Regulation (EU) No 575/2013 (CRR)
  • COM Delegated or Implementing Acts/RTS/ITS/GLs: Regulation (EU) 2018/171 - RTS on the materiality threshold for credit obligations past due
  • ID: 2021_6025
  • Topic: Credit risk
  • Date of submission:
  • Published as Rejected Q&A: 04/04/2023