Interpretation of the treatment of covered bonds under the large exposures' regime in accordance with Article 395 of the CRR and the possibility of exposure reduction pursuant to Article 399 of the CRR.

Can covered bonds used as collateral in repo transactions, which are issued by the borrower (self-issued covered bonds), be considered eligible for exposure reduction under the large exposures regime in accordance with Article 399 of the CRR, taking into account the current interpretation of Article 207(2) of the CRR and Article 400(2) of the CRR, as well as the application of ECB Regulation (EU) 2016/445?

According to the current interpretation, covered bonds that meet the requirements set out in Article 129 of the CRR may be used as eligible collateral for exposure reduction under the large exposures regime. Additionally, pursuant to Article 400(2) of the CRR, covered bonds may be fully or partially exempted from the calculation of exposure for the purpose of monitoring the large exposure limit of 25%, depending on the provisions of the national competent authority. The European Central Bank (ECB), as the competent authority, has exercised its discretion under Article 400(2) of the CRR by adopting ECB Regulation (EU) 2016/445 of 14 March 2016 on the exercise of options and discretions available in Union law, and has provided for an exemption for exposures referred to in Article 400(2)(a) of Regulation (EU) No 575/2013. For Member States under the Single Supervisory Mechanism (SSM), including Croatia, this ECB Regulation is considered applicable regulation in cases where the Member State has not exercised the transitional option under Article 493(3) of the CRR.