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    EBA Opinion on Changes to Standards on Specialized Lending Exposures

    April 17, 2020

    EBA published an opinion in response to the EC intention to amend the final draft regulatory technical standards on assigning risk-weights to specialized lending exposures, before endorsing these standards. The regulatory standards have been developed on the basis of Article 153 (9) of the Capital Requirements Regulation, or CRR (575/2013). EBA is of the view that the proposed changes, despite their substantive nature, do not alter the draft technical standards in a significant manner, as they still maintain a good balance between the flexibility and risk-sensitivity required for the internal ratings-based, or IRB, approach and the need for a harmonized regulatory framework.

    In its opinion, EBA identifies three substantive changes introduced by EC. The first two changes allow a certain flexibility in relation to the incorporation of risk drivers. The first change introduces the possibility for institutions to consider a sub-factor or a sub-factor component as irrelevant for certain types of specialized lending exposures. The second change allows institutions to consider additional relevant information (or an additional risk driver) for a type of specialized lending exposures, jointly with the sub-factor that most closely corresponds to the additional risk driver. EBA is of the view that the flexibility introduced through these two substantive changes only marginally reduces the harmonization across institutions since such factors should be applied consistently for the same type of exposure and duly justified and documented.

    The third substantive change simplifies the rules on overlapping criteria at the level of the sub-factor or of the sub-factor components. EBA is of the view that this change does not significantly jeopardize the risk-sensitivity of the approach and has the merit of simplifying the technical standards.

     

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    Keywords: Europe, EU, Banking, Risk Weight, CRR, Lending Exposures, Opinion, Regulatory Technical Standards, IRB Approach, Credit Risk, Regulatory Capital, EC, EBA

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