EBA · 2024_7231 Final Q&A

Basis of calculation for the DRC for non-securitisations and SBM-CSR for non-securitisations - instruments guaranteed by a guarantor

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
325v, para. 1
Topic
Market risk
Submitted by
Competent authority
Submitted
2024-10-29
Answered
2025-01-17
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

In the case of instruments guaranteed by a guarantor (such as guaranteed bonds), can that guarantor be used as the basis for calculating the DRC for non-securitisations and the SBM-CSR for non-securitisations?

Background

The CRR does not specify whether the ‘issuer’/‘obligor’ may be replaced by a guarantor in the case where an instrument is not guaranteed by a guarantor, for either DRC for non-securitisations or SBM-CSR for non-securitisations. Unlike the CRR, the Basel framework for DRC for non-securitisations allows issuers to be replaced by guarantors under certain conditions. In particular, MAR 22.19(2) specifies that the credit risk mitigation requirements in CRE 22.71 and CRE 22.73 apply in determining whether a guaranteed bond is an exposure to the underlying obligor or an exposure to the guarantor. While these DRC specific Basel provisions have not been incorporated into the CRR, a similar concept could be found with credit risk mitigation provisions in the CRR are set out in Art. 213(1) and 215(1) CRR. For CSR, no such possibility of replacing the issuer with a guarantor is provided for in the Basel framework.

Answer

In the context of the calculation of the own funds requirements on the basis of the sensitivity-based method for credit spread risk classes in accordance with Part Three, Title IV, Chapter 1a, Section 2, of Regulation (EU) No 575/2013 (CRR), it is not permitted to replace the issuer with a third party guaranteeing the instrument issued by that issuer. In the context of the calculation of the own funds requirement for default risk in accordance with Part Three, Title IV, Chapter 1a, Section 5, CRR, the obligor of a guaranteed instrument may be replaced by its guarantor, if the requirements for credit risk mitigation referred to in Article 213(1) and Article 215(1) CRR are met.

Original source: European Banking Authority, Q&A ID 2024_7231

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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