Response to consultation on Guidelines on specification of types of exposures to be associated with high risk
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In ESBG’s opinion, the current specification of what is to be considered as high risk with respect to private equity in the sense of Art. 128(c) CRR should be defined clearly in order to avoid misunder-standing or room for interpretation:
“3. Institutions should consider that direct investments in private equity or private equity funds re-ferred to in point (c) of Article 128 of Regulation (EU) No. 575/2013 cover at least any investment meeting both of the following conditions (…)”
In our view, the current definition leaves in fact room for interpretation whether any exposures relat-ed to investments, i.e. indirect in private equities, are to be considered as high risk in the sense of this article.
According to paragraph 7 of the draft Guidelines, “All equity exposures should be considered whether to be classified as high risk if the risk weight for any debt exposure to the same issuer is 150% or where any debt of such issuer would receive a 150% risk weight if these debt obligations were exposures of the institution”. In ESBG’s opinion, the treatment proposed is very prejudicial for these equity exposures, particularly for ADC listed companies since all ADC lending has been ask by supervisor to be considered as high risk exposure. Due to this we call for its removal.
In case the former was not attended, the following statement needs to be clarified: “(...) or where any debt of such issuer would receive a 150% risk weight if these debt obligations were exposures of the institution”. It will be hardly difficult for credit institutions to identify that case.
Question 3: Do you have any comments or concerns regarding the proposed scope of the exposures at least to be analysed according to paragraph 5? Should more guidance be provided as regards other types of exposures? If yes, please provide specifications.
Thank you for the opportunity to provide our feedback to the EBA consultation on its Guidelines regarding the types of exposures to be associated with high risk under Article 128(3) of Regulation (EU) No 575 (CRR). We would like to share with you the following reflections that we hope will be taken into account by the EBA. Please note that ESBG's additional general comments are included in the attached position paper.In ESBG’s opinion, the current specification of what is to be considered as high risk with respect to private equity in the sense of Art. 128(c) CRR should be defined clearly in order to avoid misunder-standing or room for interpretation:
“3. Institutions should consider that direct investments in private equity or private equity funds re-ferred to in point (c) of Article 128 of Regulation (EU) No. 575/2013 cover at least any investment meeting both of the following conditions (…)”
In our view, the current definition leaves in fact room for interpretation whether any exposures relat-ed to investments, i.e. indirect in private equities, are to be considered as high risk in the sense of this article.
According to paragraph 7 of the draft Guidelines, “All equity exposures should be considered whether to be classified as high risk if the risk weight for any debt exposure to the same issuer is 150% or where any debt of such issuer would receive a 150% risk weight if these debt obligations were exposures of the institution”. In ESBG’s opinion, the treatment proposed is very prejudicial for these equity exposures, particularly for ADC listed companies since all ADC lending has been ask by supervisor to be considered as high risk exposure. Due to this we call for its removal.
In case the former was not attended, the following statement needs to be clarified: “(...) or where any debt of such issuer would receive a 150% risk weight if these debt obligations were exposures of the institution”. It will be hardly difficult for credit institutions to identify that case.