EBA · 2013_249 Final Q&A

Meaning of Article 79 (b) of Directive 2013/36/EU (CRD)

Regulation
Directive 2013/36/EU (CRD)
Article
79, para. b
Topic
Supervisory review and evaluation (SREP) and Pillar 2
Submitted by
Individual
Submitted
2013-09-16
Answered
2013-12-20
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

What should standardised banks do in order to live up to CRD Article 79 (b)? Should standardised banks make their own assessment of the risk weights assigned to unrated counterparts? I.e. If a banking counterpart (institution) in a 0 % risk weight country is unrated and therefore assigned a risk weight of 20 % according to Article 121of Regulation (EU) No 575/2013 (CRR), but an internal assessment shows that other comparable counterparts with a rating get assigned a 50 % risk weight according to Article 120 of CRR, what should the calculating institution do? Should the calculating institution overwrite the 20% with 50 % or should the calculating institution add the difference in risk weighted assets under Pillar II?

Background

Clarification of what CRD Article 79 (b) means for standardised banks. Our understanding is that CRD Article 79 (b) has it origin in Basel III Para. 733 about incentives to avoid getting rated.

Answer

Article 79(b) of Directive 2013/36/EU (CRD) relates to the arrangements, processes and mechanisms of institutions and aims at ensuring that institutions have in place sound credit risk management practices. The provisions of this article applies to all institutions and is independent from the approach adopted by an institution to risk-weight its credit risk exposures. Accordingly, in the situation described in the question, the institution should not overwrite the risk-weight specified in CRR for the calculation of the capital requirements, but take into account its internal assessment in the allocation of internal capital as required by Article 79(b) of CRD.

Original source: European Banking Authority, Q&A ID 2013_249

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

Similar Q&As

Interaction between Articles 473a and 127 of the CRR (risk weight factor for exposures in default under the standardised approach)

Answered 2019-07-19

Holdings of own funds instruments issued by financial sector entities included in the scope of consolidated supervision not deducted from own funds on an individual basis

Answered 2014-01-31

Exposures to unrated institutions

Answered 2019-03-01

Risk weight for exposures to unrated institutions

Answered 2015-12-11

Calculation of institution-specific countercyclical capital buffer rates

Answered 2019-06-21

More Q&As on this topic

Weighting of EVE gains of domestic currency by a factor of 50% when calculating the aggregate EVE change for each interest rate shock scenario

Answered 2022-02-11

Credit claims in liquidity stress test buffer

Answered 2018-04-13

SREP and combined buffers

Answered 2016-08-26

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

Start free trial → Learn more

14-day free trial. No credit card required.