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

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793