Question ID
2014_1505
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Large exposures
Article
395, 400
Paragraph
1, (1)(g)
Subparagraph
last sentence
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Individual
Subject matter
On-balance sheet netting and exemption from the Large Exposures limits - question 1
Question

Are on-balance sheet (OBS) netting agreements, where both legs are denominated in different currencies, exempted from the application of Article 395(1) of Regulation (EU) No 575/2013 (CRR)??

Background on the question

Article 400, last sentence, mentions that “loans and deposits of a counterparty to or with the institution which are subject to an on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4 shall be deemed to fall under point (g)”. Chapter 4 of Title II, Part Three applies, under the Simple Method, a more punitive treatment (20% RW floor) to OBS netting when both legs are denominated in different currencies. Is it correct to consider that, although from a solvency perspective, there is no full recognition of “OBS netting” when legs are denominated in different currencies, transactions subject to OBS netting are fully recognized for Large exposure purposes and thus fully exempted from the application of the large exposure limits (articles 400 and 395(1))?

Submission date
Final publishing date
Final answer

Loans and deposits which are subject to an on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4 are deemed to fall under Article 400(1)(g) of Regulation (EU) No 575/2013.  All provisions referring to on-balance sheet netting agreements under Part Three, Title II, Chapter 4 are relevant for the recognition of the exemption under Article 400(1)(g)of the CRR.

The exception to the abovementioned article is that the exemption must fulfil the general requirements for the recognition of credit risk mitigation techniques under Part Three, Title II, Chapter 4 of the CRR. In particular, Articles 195 and 219 of the CRR limit on-balance sheet netting to reciprocal cash balances denominated in the same currency between an institution and its counterparty that are subject to an on-balance sheet netting agreement. This exception is without prejudice to the rights of set-off associated with other transactions subject to an enforceable master netting arrangement as specified in Article 196 of the CRR.

On-balance sheet netting agreements, where both legs are denominated in different currencies are therefore not included in the exemption under Article 400 (1)(g) of the CRR.

See also Q&A 2014_1508.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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