EBA · 2016_2935 Final Q&A

Other items

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
134, para. 5
Topic
Credit risk
Submitted by
Credit institution
Submitted
2016-10-10
Answered
2017-04-21
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

Does the approach specified in Article 134(5) CRR regarding the risk weight to be applied to assets purchased on a forward basis also apply to assets sold on a forward basis?

Background

Article 134(5) CRR specifies that the risk weight which should be applied to assets purchased on a forward basis should be risk weighted based on the asset in question and not the counterparty with which the contract has been written. From an accounting perspective Trade Date accounting is applied to assets which have been sold forward. For example, if a Sovereign Bond is sold forward one week then on the day the transaction is entered into (i.e. one week before the delivery date) the Available for Sale asset is credited (reduced) and the asset "Other items" is debited (increased). What risk weight should apply to this asset between the Trade Date and the delivery date - should it be the risk weight of the Sovereign Bond or the risk weight of the counterparty to which the bond has been sold.

Answer

Article 134(5) of Regulation (EU) No 575/2013 (CRR) is not applicable to outright forward sales because this provision is explicitly limited to asset sale and repurchase agreements and outright forward purchases. As long as the asset sold forward remains included as an asset in the balance sheet, the institution remains exposed to the same loss risk for this asset as before. Thus, the same capital requirements as before the forward sale continue to apply to this asset, irrespective of any re-assignment from one accounting category to another. In particular the exposure class “other items” according to Article 112(q) CRR is independent from an assignment to a category “other items” under the applicable accounting framework.

Original source: European Banking Authority, Q&A ID 2016_2935

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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