EBA欧洲银行-EBA-Report-on-CRM-framework_38页_1mb

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

Core Content

The European Banking Authority (EBA) has conducted a review of the Credit Risk Mitigation (CRM) framework as part of its work programme on the Internal Ratings-Based (IRB) approach. This report outlines the current CRM provisions under the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV), evaluates their usage across European institutions, and presents policy recommendations for potential amendments.

Main Points

1. CRM Framework Overview

• Definition of CRM: According to the CRR, CRM is a technique used by institutions to reduce the credit risk associated with exposures they continue to hold. The use of CRM can result in capital relief and a reduction in risk-weighted assets.
• Types of CRM Techniques:
  • Funded Credit Protection (FCP): Involves the receipt of collateral that 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, but involves collateral pledged by third parties.
• Credit Risk Approaches:
  • Standardised Approach (SA): Uses predefined risk weights and methods for CRM.
  • Foundation-IRB (F-IRB): Uses supervisory values for Loss Given Default (LGD) and conversion factors.
  • Advanced-IRB (A-IRB): Uses own estimates of LGD and conversion factors. The EBA has noted limited guidance for A-IRB institutions in the CRR and plans to develop separate guidelines.

2. CRM Application and Methods

• Funded Credit Protection (FCP):
  • Financial Collateral Simple Method (FCSM): Assigns a risk weight to the secured part of the exposure based on the collateral, with a minimum of 20%.
  • Financial Collateral Comprehensive Method (FCCM): Reduces the exposure value by applying haircuts, and assigns a 0% risk weight to the secured part if the exposure and collateral are in the same currency.
• Unfunded Credit Protection (UFCP):
  • Substitution Approach: Replaces the risk weight of the secured part with that of the protection provider, while the unsecured part retains the original risk weight.
  • Double Default Framework: Applies to exposures fully guaranteed or with proportional cover.
• Other Funded Credit Protection (OFCP):
  • Includes instruments such as cash on deposit with third-party institutions and life insurance policies. These are treated similarly to UFCP, using the substitution approach.

3. CRM Usage in the EU

• The EBA conducted a data collection in April 2017 to assess the usage of CRM techniques across European institutions.
• This data is used to inform the EBA's policy recommendations and to highlight the need for clarity and consistency in CRM application.

4. Policy Issues and Recommendations

• Limited Guidance: The CRR provides limited guidance for A-IRB institutions, leading to variability in CRM application. The EBA recommends developing specific guidelines for this area.
• Regulatory Technical Standards (RTS): The EBA has identified three mandates for technical standards on CRM, but believes they only address specific aspects and may not lead to significant capital relief.
• Article 194(10) of the CRR: The EBA recommends deleting the provision related to liquid assets, as it may not be necessary for a comprehensive CRM framework.
• International Developments: The EBA considers the upcoming Basel reforms and international developments in credit risk mitigation when assessing the need for changes to the CRM framework.

Key Information

• The EBA has mapped CRM provisions to the SA and F-IRB approaches, highlighting differences in how CRM is applied under each.
• The CRM framework is referenced in multiple chapters of the CRR, including those on securitisation and counterparty credit risk.
• The use of CRM techniques can lead to a reduction in risk-weighted assets and capital requirements, depending on the method and type of protection used.
• The EBA emphasizes the importance of a harmonized and clear CRM framework to ensure a level playing field and avoid regulatory arbitrage.
• The EBA plans to continue monitoring the need for CRM reforms and will focus on developing targeted fixes rather than overhauling the entire framework at this stage.

Conclusion

The EBA's report on the CRM framework highlights the need for increased clarity and consistency in the application of CRM techniques across the EU. It outlines the current framework, usage patterns, and policy considerations, recommending specific actions to improve the regulatory environment for credit risk mitigation. The EBA will continue to monitor the CRM framework and its international developments, with the aim of ensuring a robust and effective regulatory approach.