BaFin Circular on Specifying High-Risk Exposures Under CRR

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)

• Press Release
• Circular 13/2019
• Letter to Circular (DOCX)
• EBA Guidelines (PDF in English)

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