EBA · 2017_3296 Rejected question

Definition of subordinated exposures

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
161, para. 1
Topic
Credit risk
Submitted by
Individual
Submitted
2017-05-16
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Question

What is the definition for subordinated exposures within the context of article 161?

Background

Article 161 prescribes an unsecured LGD of 75% for subordinated exposures under Foundation IRB as opposed to 45% for senior exposures, but subordinated exposures are not specifically defined in the CRR. There are several possible definitions that are used by various functions in banks and there is a need to understand which one is the appropriate one to use within the context of CRR. One definition in use focuses on legal or contractual subordination i.e. whether the exposure is pari passu with other loans of the same borrowing entity. Another definition focuses on structural subordination i.e. whether the borrowing entity will have access to any asset if lending to a holding company. As a result, lending to holding companies would be deemed to be subordinated to lending to downstream operating companies even if the holding company has full control over the operating company.
No answer published yet.

Original source: European Banking Authority, Q&A ID 2017_3296

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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