BaFin published Circular 13/2019 (BA) on specification of types of exposures to be associated with high risk in accordance with Article 128(3) of the Capital Requirements Regulation (CRR). The circular comes into force on January 01, 2020. With this circular, BaFin is adopting the EBA guidelines (EBA/GL/2019/01) regarding the types of exposures to be associated with high risk under the Article 128(3) of the CRR. The circular highlights that if an institution determines item types according to section 4.3, Sub-section 7 of the guidelines, it shall communicate this together with a brief description of the most important features of the risk positions to BaFin. BaFin sends the information regarding the risk position type and the characteristics anonymously to EBA.
Article 128 of the CRR sets out the requirements for classifying an exposure as an item associated with particularly high risk, which results in an assignment of a 150% risk-weight for the considered exposure. Paragraph 2 of Article 128 provides a list of exposures which are assigned to this exposure class:
- Investments in venture capital firms
- Investments in AIFs as defined in Article 4(1)(a) of Directive 2011/61/EU, except where the mandate of the fund does not allow a leverage higher than that required under Article 51(3) of Directive 2009/65/EC
- Investments in private equity
- Speculative immovable property financing
Additionally, Article 128(3) CRR provides a mandate to EBA to draft guidelines that specify which types of exposures, other than those mentioned in Article 128(2) CRR, are to be associated with particularly high risk and the circumstances under which this should happen. As a result of an exposure being identified as an "item of particularly high risk," such exposure receives a risk-weight of 150%. This high-risk exposure class represents the implementation of the discretion that national supervisors are granted in paragraph 80 of the current Basel II standard that states that national supervisors may decide to apply a 150% (or higher) risk-weight to reflect "the higher risks associated with some other assets, such as venture capital and private equity investments."
Related Links (in German)
Effective Date: January 01, 2020
Keywords: Europe, Germany, Banking, CRR, High Risk Exposures, Credit Risk, Reporting, Risk-Weighted Assets, Standardized Approach, National Discretions, EBA, BaFin
Previous ArticleBoE Governor Appointed as UN Envoy for Climate Action and Finance
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.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.
The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.