- Question ID
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2014_1508
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Large exposures
- Article
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400
- Paragraph
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(1)(g)
- Subparagraph
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2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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Not applicable
- Type of submitter
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Individual
- Subject matter
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On-balance sheet netting and exemption from the Large Exposures limits
- Question
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Are on-balance sheet (OBS) netting agreements, where there are maturity mismatches between loans and deposits, eligible the exemption from the large exposures regime as laid down in Article 400 of Regulation (EU) No 575/2013 (CRR)?
- Background on the question
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Article 400, second subparagraph refers to on-balance sheet netting agreement recognised under Part Three, Title II, Chapter 4, which shall be deemed to fall under point (g) of Article 400, i.e be exempted from the application of the large exposure limits (article 395(1)). On-balance sheet netting agreements, with maturity mismatches between loans and deposits, are recognized (under the conditions of Chapter 4, section 5) for CRM purposes under the Financial Collateral Comprehensive Method. On-balance sheet netting agreements, with maturity mismatches between loans and deposits, are not recognized for CRM purposes under the Financial Collateral Simple Method. Thus the recognition of “OBS netting” with maturity mismatches depends on the method applied (Simple Method, Comprehensive Method) for CRM purposes! Thus, feedback is sought on whether or not transaction with “OBS netting”, where there is a maturity mismatch between loans and deposits, are fully exempted from the application of the large exposure limits (Article 395(1)), irrespective of the method applied (Simple Method, Comprehensive Method) for CRM purposes?
- Submission date
- Final publishing date
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- Final answer
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The exemption from the large exposures regime as laid down in Article 400(1)(g) of Regulation (EU) No 575/2013 (CRR) refers to asset items and other exposures secured by collateral in the form of cash deposits placed with the lending institution or with an institution which is the parent undertaking or a subsidiary of the lending institution.
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 nettings recognised under IFRS accounting rules are included in the exception specified in Article 400(1)(g) of the CRR. Maturity mismatches between loans and deposits are not relevant in this context.
However, Article 205 of the CRR sets out the requirements for on-balance sheet netting arrangements, one of which is that institutions monitor and control the risks associated with the termination of the credit protection on an ongoing basis.
Please note that different jurisdictions may have different rules regarding unconditional and legally enforceable rights of set-off, as well as intention either to settle the asset and liabilities on a net basis or to realize the asset and settle the liability simultaneously. These transactions would be considered as on balance sheet netting for the purpose of Article 400 on a case-by-case basis.
Please see Q&A 2013_538 that refers to definition of counterparty for the purpose of applying on-balance sheet netting.
See also Q&A 2014_1505.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the EBA.
- Note to Q&A
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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.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.