Countercyclical capital buffer (CCB) relevant exposures

Should sovereign and institutions exposures in default (under Article 112.j of Regulation (EU) No 575/2013) and exposures to institutions with a short-term credit assessment (under Article 112.n of Regulation (EU) No 575/2013) be excluded from the relevant exposures required for CCB purposes?

Under Article 140 of the CRD, exposures to sovereigns and institutions are excluded. It is unclear whether exposures to sovereign and institution which are in default, with a short term credit assessment or exposures to institutions in non-equivalent countries (which are not treated as institutions due to the equivalency rules under Article 107.3 of Regulation (EU) No 575/2013) should be excluded from the list of relevant exposures for CCB. Exposures to institutions and sovereigns which are in default, exposures to institutions in non-equivalent countries or with a short term credit assessment do not appear to meet the rational for the CCB. In particular, the intention for CCB is to look at core credit activity in the economy, hence the rational for excluding exposures to sovereigns and institutions. This logic should also be applied to the aforementioned exposures.