EBA Proposes Standards to Determine Risk-Weight for Immovable Property
EBA proposed regulatory technical standards that specify how to identify the appropriate risk-weights and conditions when assessing minimum loss given default (LGD) values for exposures secured by immovable property. The regulatory standards are relevant for institutions applying both the standardized and the internal-ratings based approaches under the Capital Requirements Regulation or CRR. The consultation period for these standards ends on July 29, 2021 and the standards are expected to be finalized by October 31, 2021.
Under CRR, the relevant authority, as designated by a member state, may set higher risk-weights, impose stricter criteria on risk-weights, or increase the minimum LGD values when the following two conditions are met:
- Risk-weights do not adequately reflect the actual risks related to the exposures secured by mortgages on residential property or commercial immovable property, or that the minimum LGD values are not adequate
- Identified inadequacy of these risk-weights or minimum LGD values could adversely affect the current or future financial stability in the member state
These draft technical standards focus on the first condition. For institutions applying the standardized approach, these draft technical standards specify the types of factors that authorities should consider during the risk-weight assessment on the basis of the loss experience of exposures secured by immovable property and forward-looking immovable property market developments. The draft regulatory technical standards delineate the types of factors to be considered in the determination of the loss expectation. For institutions applying the internal ratings-based approach to retail exposures secured by residential or commercial immovable property, these draft technical standards provide conditions to be considered when assessing the appropriateness of minimum LGD values. For both assessments, proper coordination and cooperation between the competent and the designated authority are key to strengthening the identification of risks and to avoid overlaps, double-counting of risk, and duplicative actions by authorities.
In addition to the adequate consideration of the loss experience and the differences between assessing risk-weights under the standardized approach or minimum LGD values under the internal ratings-based approach, the draft technical standards focus on other key elements for the appropriateness assessments, which include:
- Existence of national specificities related to the real estate market and its financing, such as public and private guarantee schemes, tax deductibility, recourse regimes, or social safety nets
- Assessment at the level of parts of the territory or at the level of specific property segments, if deemed relevant
- Data problems concerning relevant indicators, such as availability, quality, granularity, or harmonization
Related Links
Comment Due Date: July 29, 2021
Keywords: Europe, EU, Banking, CRR, Basel, Risk Weight, Loss Given Default, Regulatory Technical Standards, Standardized Approach, IRB Approach, Credit Risk, Regulatory Capital, EBA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
CBIRC to Further Promote Development of Financial Services for SMEsRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.