EBA · 2015_2484 Final Q&A

Risk weight for exposures to central-government-risk Public Sector Entities (PSEs) denominated and funded in domestic currency

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
116, para. 4
Topic
Credit risk
Submitted by
Competent authority
Submitted
2015-11-24
Answered
2016-07-15
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

May exposures to PSEs established in a Member State, whose level of risk in the opinion of the competent authority of the Member State in question does not differ from the level of risk of the central government, be assigned a risk weight of 0% in accordance with Article 114(4) of CRR if they are denominated and funded in domestic currency?

Background

In accordance with Article 116(4) of CRR, exposures to PSEs may be treated as exposures to central government in whose jurisdiction they are established where in the opinion of the competent authorities of this jurisdiction there is no difference in risk between such exposures because of the existence of appropriate guarantee by the central government. In accordance with Article 114(4) of CRR, exposures to Member States' central governments denominated and funded in the domestic currency shall be assigned a risk weight of 0%. Article 116(4) of CRR does not exclude the application of Article 114(4) of CRR for exposures to PSEs which may be treated as exposures to central government.

Answer

According to Article 116(4) of Regulation (EU) No 575/2013 (CRR), in exceptional circumstances exposure to public-sector entities (PSE) may be treated as exposures to the central government, regional government or local authority in whose jurisdiction they are established if in the opinion of the competent authorities of this jurisdiction there is no difference in risk because of the existence of an appropriate guarantee by the central government, regional government or local authority. In order to be assigned a risk weight of 0% in accordance with Article 114(4) CRR the exposures to PSE that are treated as exposures to the central government of a Member State shall be denominated and funded in the domestic currency, or, according to Article 495(2) CRR until 31 December 2017, in the domestic currency of any Member State.

Original source: European Banking Authority, Q&A ID 2015_2484

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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