EBA · 2013_414 Archive

Conditions taken into account to use the factor 0,7619

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
501, para. 2(c)
Topic
Credit risk
Submitted by
Credit institution
Submitted
2013-10-21
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Should an institution stop using the factor 0.7619 as soon as the amount owed to the SME enterprise exceeds 1.5m EUR?

Background

The amount of exposure to one counterparty as well as its annual turnover change during the time of contract. The question is if the institutions should stop using the factor 0.7619 when the total amount owned to counterparty exceeds 1.5m EUR as well as the annual turnover exceeds the amount given in the Commission Recommendation 2003/361/EC, and then return to using this factor as soon as the conditions return to those presented in Article 501 of CRR.

Answer

The conditions specified in Article 501(2) should be met on an on-going basis. Accordingly, if, or as soon as the total amount defined in Article 501(2)(c) exceeds, for a given client or group of connected clients, EUR 1,5 million to the knowledge of the institution, the institution should stop using the factor of 0.7619. However, if, or as soon as the total amount no longer exceeds the EUR 1,5 million threshold, the institution can once again apply the factor of 0.7619 for the corresponding client or group of connected clients. In order to ensure that the conditions of Article 501(2)(c) are met on an on-going basis, institutions shall take reasonable steps to acquire and maintain the relevant information on their customers.

Original source: European Banking Authority, Q&A ID 2013_414

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.

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