EBA · 2015_1757 Final Q&A

Definition for short-term letters of credit

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
4, 120, para. 1(80)
Topic
Other issues
Submitted by
Other
Submitted
2015-01-26
Answered
2015-06-19
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

What does short-term in this context mean? 90 days or 1 year? Residual maturity or original effective maturity?

Background

In different parts of CRR the term 'short-term' is used but with different meaning. For example: '... fixed short-term maturity, generally of less than one year', Article 4 (1)(80) CRR; 'Exposures to an institution of up to three months residual maturity ', Article 120 CRR; 'For exposures to unrated institutions with an original effective maturity of three months or less', Article 121 CRR.

Answer

Article 4(1)(80) of Regulation (EU) No 575/2013 (CRR) defines 'trade finance' as 'financing, including guarantees, connected to the exchange of goods and services through financial products of fixed short-term maturity, generally of less than one year, without automatic rollover'. Therefore, to the extent that letters of credit are typically trade finance products, 'short term' should be understood as implying generally a maturity of less than one year at origination.

Original source: European Banking Authority, Q&A ID 2015_1757

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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