EBA · 2015_1728 Rejected question

Assignment of irrevocable standby letters of credit and guarantees, which neither have the character of credit substitutes nor are related to trade finance, to the relevant risk category according to Annex I of the CRR.

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
Annex I
Topic
Credit risk
Submitted by
Competent authority
Submitted
2015-01-16
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Question

Are irrevocable standby letters of credit and guarantees, which neither have the character of credit substitutes nor are related to trade finance, assigned to the risk category ‘medium risk’ according to Annex I?

Background

Annex I CRR assigns the off-balance sheet items to the four different risk categories. Whereas certain off-balance sheet items are explicitly assigned to a risk category, there is also a ‘catch all clause’ for all other items carrying full, medium, medium/low and low risk. For the last three risk categories, those items must also be communicated to EBA. However, the CRR does not give any additional guidance to which risk category other off-balance sheet items must be assigned that are not explicitly listed. For example, irrevocable standby letters of credit or guarantees, that neither have the character of credit substitutes nor are related to trade finance, are not explicitly assigned to any risk category. However, irrevocable standby letters of credit and guarantees having the character of credit substitutes are assigned to the risk category ‘full risk’ (see Annex I (1) (a) and (f) CRR). In addition, trade finance related irrevocable standby letters of credit and guarantees not having the character of credit substitutes are assigned to the risk category ‘medium/low risk’ (see Annex I (3) (a) (ii) and (iii) CRR).
No answer published yet.

Original source: European Banking Authority, Q&A ID 2015_1728

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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