Substitution of ratings for CRMT purposes

Article 197(1)(b) of Regulation (EU) No 575/2013 (CRR) states that institutions may use debt securities issued by central governments as eligible collateral for the purposes of credit risk mitigation provided that those securities "have a credit assessment by an ECAI or export credit agency recognised as eligible for the purposes of Chapter 2" and the credit assessment at least meets a certain floor (i.e. at least credit quality step 4). At the same time, Article 139(2) of the CRR provides that in case where a "specific issuing programme or facility to which the item constituting the exposure belongs" does not have a specific credit assessment, but a general credit assessment exists for the issuer, then that credit assessment must be used if certain conditions are met. Reading the two Articles in conjunction (not doing so would introduce an asymmetry in the treatment of exposures and eligible collateral that does not appear justifiable from a prudential perspective) it follows that a debt security, which is issued by a central government and which does not have a credit assessment, can be considered as eligible collateral if all the following conditions are met: there exists a general credit assessment for that central government; the credit assessment referred to in point (i) at least meets the floor laid down in Article 197(1)(b); the debt security meets the seniority condition in Article 139(2)(b). Furthermore, taking into account Article 197(2) of the CRR, the above treatment can also be applied to debt securities listed in points (a) to (d) of that paragraph. DISCLAIMER: This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Internal Market and Services) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.