EBA欧洲银行-EBA-Op-2014-13-28Opinion-on-the-partial-waiver29_5页_210kb

EBA Opinion on Partial Waiver of Article 129(1)(c) of the CRR

Core Content

The European Banking Authority (EBA) issued an opinion on 17 December 2014 regarding the partial waiver of Article 129(1)(c) of the Capital Requirements Regulation (CRR). This article restricts the collateralisation of eligible covered bonds to exposures to credit institutions classified as CQS 1, with a cap of 15% of the total nominal amount of outstanding covered bonds. The EBA concluded that the Danish Financial Supervisory Authority (FSA) had provided sufficient evidence to justify a partial waiver, which would allow up to 10% of the total exposure to be classified under CQS 2.

Legal Basis

• The EBA's competence to deliver an opinion is based on Article 29(1)(a) of Regulation (EU) No 1093/2010.
• The partial waiver is allowed under the third subparagraph of Article 129(1)(c) of the CRR, which permits competent authorities to allow CQS 2 for up to 10% of the total exposure if a significant potential concentration problem is documented.

Main Points

• CQS 1 Requirement: Covered bonds can only be collateralised with exposures to credit institutions classified as CQS 1, and such exposures must not exceed 15% of the total nominal amount of outstanding covered bonds.
• CQS 2 Waiver: If a concentration problem exists, competent authorities may allow up to 10% of the exposure to be classified under CQS 2.
• Danish FSA's Proposal: On 8 May 2014, the Danish FSA submitted a proposal to partially waive Article 129(1)(c) of the CRR.
• EBA's Assessment: The EBA found that the Danish covered bond market faces a significant concentration risk due to the limited number of CQS 1 credit institutions.

Key Information

Current Classification of Danish Credit Institutions

• Only Nordea Bank Danmark is currently classified as a CQS 1 credit institution.
• The rest of the Danish credit institutions have lower credit ratings and are classified as CQS 2 or below.
• Table 1 shows the credit ratings of Danish credit institutions by ECAIs (External Credit Assessment Institutions).

Composition of the Danish Covered Bond Market

• In June 2014, seven covered bond issuers held outstanding covered bonds for a total nominal amount of approximately DKK 2.2 tn (EUR 298 bn).
• Without the partial waiver, these issuers would have to rely on only one eligible credit institution for collateralisation, leading to excessive concentration.

Concentration Concerns

• The limited number of CQS 1 institutions in Denmark creates a prudential risk due to over-concentration in exposures.
• The CRR's large exposure rules further constrain the ability of covered bond programmes to diversify their collateral.
• 77 institutions in Denmark are assigned a CQS based on the Danish State's rating, but they lack the capacity to meet the demand for exposures to credit institutions.

Waiver Implementation and Monitoring

• The Danish FSA will issue an executive order to implement the partial waiver.
• The order will be published on the Danish FSA's website.
• The waiver will be reviewed every two years to assess its continued relevance.
• If the concentration problem is no longer significant, the waiver will be repealed through an executive order.
• Grandfathering: Exposures to CQS 2 credit institutions entered into while the waiver was in force will remain valid even after its termination.

Conclusion

The EBA concluded that the partial waiver is currently justified due to the concentration risk in the Danish covered bond market. The waiver allows for a more diversified collateral base and supports market competition and stability. The Danish FSA will monitor the situation and reassess the waiver's necessity periodically.