EBA · 2017_3231 Final Q&A

Risk weight to apply to exposures to unrated central banks

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
114, para. 2
Topic
Credit risk
Submitted by
Credit institution
Submitted
2017-03-20
Answered
2017-07-14
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

What risk weight should be assigned to exposures to the central bank of a non EU-member country when the central bank does not have a credit assessment by a nominated ECAI (i.e., it is unrated)? Would it be appropriate to assign a risk weight of 100% to exposures to said central bank, independently of the rating of the central government?

Background

Article 114 of the CRR states that exposures to central banks and central governments should be risk weighted at 100%, unless a series of exceptions apply (paragraphs 2-7 or Article 114). For non-member states without equivalent supervision, the only potential deviation from a RW of 100% lies in external ratings. It is implicit in paragraph 2 that the existence of an external rating for the central bank or for the central government would change the risk weight of associated exposures, but not of exposures to both entities. In other words, we would like to confirm that the existence of an external credit rating for a central government would not by itself be sufficient to change the risk weight of exposures to an unrated central bank (and vice-versa).

Answer

Where an ECAI nominated by the institution has provided a credit assessment that applies to exposures to the central government of a third country but not to exposures to the central bank of this country, this credit assessment is not available for assigning a corresponding risk weight to exposures to the central bank according to Article 114(2) of Regulation (EU) No 575/2013 (CRR). Likewise a credit assessment by a nominated ECAI applying to exposures to the central bank of a third country but not to the central government of this third country is not available for assigning a corresponding risk weight to exposures to the central government according to Article 114(2) CRR. Therefore, in accordance with Article 114(1) CRR, exposures to central governments and central banks for which a credit assessment by a nominated ECAI is not available shall be assigned a 100 % risk weight, unless the treatments set out in paragraphs 2 to 7 apply.

Original source: European Banking Authority, Q&A ID 2017_3231

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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