Featured Product

    EC Delegated Regulation on Specialized Lending Exposures Under CRR

    April 14, 2021

    EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures. These technical standards specify how institutions should take into account the factors of financial strength, political and legal environment, transaction and/or asset characteristics, strength of the sponsor and developer, and security package when assigning risk-weights to specialized lending exposures. Regulation 2021/598 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    Under the internal ratings-based approach, for specialized lending exposures in respect of which an institution is not able to estimate probabilities of default (PDs) or the institutions' PD estimates do not meet certain requirements, institutions are to assign risk-weights to specialized lending exposures in accordance with Article 153(5) of CRR. Institutions are required to classify each specialized lending exposure in one of the four specified classes: project finance, real estate, object finance, and commodities finance. To ensure a harmonized approach to the assignment of the specialized lending exposures to categories, it should be laid down how those factors are to be taken into account by providing for a calculation of values on the basis of which the factors can be linked to the risk categories. For the institutions to adequately apply each of those factors, they should be further specified in the form of sub-factors with a view to clarifying the assessment criteria for each situation. To adequately assess the sub-factors, it is necessary to further specify some sub-factors in sub-factor components.

    To reflect the internationally agreed standards on assigning risk-weights to specialized lending exposures, as specified by BCBS in the Basel II framework, and to take into account the large number of variations in specialized lending exposures, different assessment criteria should be applied to each class of specialized lending exposures when applying the factors. Before assigning a risk-weight to a specialized lending exposure, institutions should determine to which of those classes the specialized lending exposure most closely corresponds. For specialized lending exposures that are not in default, institutions should apply the assessment criteria associated with the relevant class in the Annex of these technical standards. For specialized lending exposures that are identified as in default, the institution should assign the exposure to category 5.

    In addition to this, in exceptional situations, institutions should be allowed not to apply a certain sub-factor or sub-factor component for an individual specialized lending exposure, where they find it not to be relevant. Institutions should also be allowed not to apply a certain sub-factor or sub-factor component to all specialized lending exposures belonging to a type of exposures when that sub-factor or sub-factor component is not a relevant risk driver for that type of specialized lending exposures. Institutions should specify for each type of exposure how the different factors are combined in the final assignment of the specialized lending exposure to one of the categories. The final assignment to a category should be done on the basis of the weighted average of the cardinal numbers of the categories to which the exposure has been assigned, for each factor. The weight that institutions assign to each factor should not be lower than 5% and not be higher than 60%.

     

    Related Link: Regulation 2021/598 (PDF)

    Effective Date: May 04, 2021

    Keywords: Europe, EU, Banking, CRR, Basel, Risk Weight, Lending Exposures, Regulatory Capital, IRB Approach, Credit Risk, EC

    Featured Experts
    Related Articles
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    EIOPA Consults on Reporting and Disclosures Under Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7295