EBA · 2016_2838 Rejected question

Max amount of cash leverage in the mandate of an AIF in order to NOT be considered as a high risk exposure

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
128, para. 2
Topic
Leverage ratio
Submitted by
Individual
Submitted
2016-07-20
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Question

What is the maximum permitted “cash leverage” allowed in the mandate of the alternative investment fund (AIF) in order not be considered high risk? In the event the AIF is NOT considered to be high risk, should then Article 132 CRR be taken as reference?

Background

I am trying to understand the risk weight requirement for a bank that invests into an AIF and how the use of cash leverage influences such requirement. Article 128(2)(b) CRR states that an investment into a AIF as defined in Article 4(1)(a) of Directive 2011/61/EU is an exposure with particularly high risks EXCEPT where the mandate of the fund does not allow a leverage higher than that required under Article 51(3) of Directive 2009/65/EC (UCITS Directive). Article 51(3) of Directive 2009/65/EC only refers to derivatives instruments, rather than, for example, traditional bank leverage (cash) that the AIF may use in order to buy additional assets in order to achieve higher yield (i.e. AIF obtains a loan from third party (cash) that is reinvested).
No answer published yet.

Original source: European Banking Authority, Q&A ID 2016_2838

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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