EBA · 2015_1890 Rejected question

Treatment of an asset resulting from obligatory payments to Deposit Guarantee Scheme in Risk Weighted Assets calculation (Standardised Approach).

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
116
Topic
Credit risk
Submitted by
Individual
Submitted
2015-03-12
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Question

How should an asset resulting from prepayment of obligatory contribution to Deposit Guarantee Scheme be treated for the purpose of credit risk capital requirements calculation under the Standardised Approach? Should it be recognised as ‘Other assets’ (prepayments to unknown counterparty) or as an exposure to the Deposit Guarantee Scheme? Moreover, if the recognition as an exposure to the Deposit Guarantee Scheme is correct, is it possible to treat the Deposit Guarantee Scheme as a Public Sector Entity which can be treated under Article 116(4) CRR, and therefore assigned a 0% risk weight?

Background

A Bank is obliged to pay its yearly contribution to obligatory Deposit Guarantee Scheme on March. According to the matching principle, the Bank recognises an asset resulting from prepayment of this contribution and gradually recognizes this amount as an expense during the year. The resulting asset has to be included in Risk Weighted Assets calculation. It is not clear how should an asset resulting from prepayment of obligatory contribution to Deposit Guarantee Scheme be treated for the purpose of credit risk capital requirements calculation under Standardised Method. As this type of asset bears no credit risk for the institution, it should not increase the amount of Risk Weighted Assets. This would require, that the prepayment is treated as an exposure to Deposit Guarantee Scheme and is assigned a 0% risk weight (due to treatment of DGS according to art. 116 point 4 CRR). it is unclear if the proposed approach to recognition of such an asset is correct or whether there is an alternative way of recognising such an asset in RWA calculation.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2015_1890

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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