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
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
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.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.