Treatment of government bonds of a third country as Level 1 assets when the credit quality step 1 is assigned according to article 114(7) of Regulation (EU) 575/2013

Assets representing claims on or guaranteed by the central government of a third country have to be assigned a credit assessment of at least credit quality step 1 in accordance with  Article 114(2) of Regulation (EU) 575/2013 (“CRR”) to qualify as Level 1 assets according to Article 10(1)(c)(ii) of Delegated Regulation (EU) 2015/61. Article 114(7) allows institutions to use lower risk weights assigned by a third country than those indicated in the table of Article 114(2), for exposures to the central government and the central bank of this third country which has equivalent supervisory regime. Nevertheless, this article does not allow to conclude that as a consequence, when an exposition is assigned a 0% risk weight, the credit quality step for this exposition is 1. Consequently, the provisions of Article 114(7) of the CRR are not applicable to the LCR framework. Assets representing claims on or guaranteed by the central government of a third country that are not assigned a credit assessment of credit quality step 1 in accordance with Article 114(2) of the CRR may be recognized as Level 1 according to Article 10(1)(d) of Delegated Regulation (EU) 2015/61 up to the amount of the credit institution's stressed net liquidity outflows incurred in the same currency in which the assets is denominated.