2018年-EBA欧洲银行管理局_EBA_Report_on_CRM_framework_38页_952kb

EBA Report on the Credit Risk Mitigation (CRM) Framework Summary

Core Content

The European Banking Authority (EBA) conducted an analysis of the Credit Risk Mitigation (CRM) framework as part of its work programme on the review of the Internal Ratings-Based (IRB) approach. The report is structured into three main parts: an overview of the CRM framework, an analysis of its usage across the European Union, and a discussion of policy-related aspects.

Main Points

1. Purpose and Scope

• The EBA report aims to clarify the application of CRM provisions in the Capital Requirements Regulation (CRR) for institutions using different credit risk approaches.
• It evaluates the need for harmonization and clarity in the CRM framework to ensure a consistent and fair application across the EU.
• The report does not recommend a major overhaul of the CRM framework but instead proposes targeted fixes to address unclear or inconsistent provisions.

2. Credit Risk Mitigation Framework Overview

Definitions

• Credit Risk Mitigation (CRM): A technique used by institutions to reduce credit risk on exposures.
• Funded Credit Protection (FCP): Involves receiving collateral upfront, which can be liquidated or retained upon default.
• Unfunded Credit Protection (UFCP): Relies on a third party's promise to pay upon default.
• Other Funded Credit Protection (OFCP): Similar to UFCP, involving third-party collateral that can be repurchased.

Types of Credit Risk Approaches

• Standardised Approach (SA): Uses predefined risk weights and methods.
• Foundation-IRB (F-IRB): Uses supervisory LGD and conversion factors.
• Advanced-IRB (A-IRB): Uses own estimates of LGD and conversion factors.

Key Differences

• Under FCP, the protection is based on the value of the collateral.
• Under UFCP, the protection is based on the third party’s ability to pay.
• Under OFCP, the protection is based on the third party’s promise to repurchase the collateral.

3. CRM Techniques and Methods

Funded Credit Protection (FCP)

• On-balance sheet netting (OBSN): Applies to loans and deposits.
• Financial Collateral:
  • Simple Method (FCSM): Assigns a 20% floor risk weight to the secured part of the exposure.
  • Comprehensive Method (FCCM): Reduces exposure value by applying haircuts and uses the original risk weight.
• Credit-linked notes: Issued by the lending institution.

Unfunded Credit Protection (UFCP)

• Guarantees and credit derivatives: Used to reduce risk by relying on third-party payment.
• Substitution approach: Replaces the risk weight of the secured part with that of the protection provider.

Other Funded Credit Protection (OFCP)

• Cash on deposit with third-party institutions and CAIs (Cash Assimilated Instruments): Treated similarly to guarantees.
• Life insurance policies: The secured part is assigned a risk weight based on the insurance provider’s risk profile.

4. Usage of the CRM Framework

• A data collection was conducted in April 2017 among competent authorities.
• The report provides a quantitative overview of CRM usage across the EU.
• The EBA found that the CRM framework is complex due to multiple references and cross-references in the CRR.

5. Policy Issues and Recommendations

• Limited guidance for A-IRB institutions: The EBA recommends developing specific guidelines for the use of CRM under the A-IRB approach.
• Three mandates for technical standards: Identified in the EBA's roadmap, but the EBA believes these only cover limited aspects and may not justify a full overhaul.
• Recommendation to delete Article 194(10): The EBA suggests removing the provision on liquid assets from the CRR.
• Continued monitoring: The EBA will continue to monitor the need for further CRM reforms, incorporating international developments.

Key Information

• The CRM framework is referenced in various parts of the CRR, particularly in Chapter 4 of Part Three, Title II.
• Article 108 of the CRR determines which CRM provisions apply depending on the credit risk approach used.
• Currency mismatches affect the risk weight applied to collateral under the FCCM.
• Eligibility criteria for CRM techniques include the type of collateral and the presence of a nominated External Credit Assessment Institution (ECAI).
• Credit insurance may qualify as a guarantee under certain conditions, depending on its economic substance.

Conclusion

The EBA report emphasizes the need for clarity and consistency in the CRM framework across the EU. It advocates for targeted amendments rather than a comprehensive overhaul, especially considering the upcoming Basel reforms and the importance of a level playing field for financial institutions. The report also outlines the current structure and usage of CRM techniques and methods, and highlights the importance of incorporating international developments in the regulatory framework.