Article 193(1) CRR states, as a general principle for Credit Risk Mitigation (CRM), that no exposure in respect of which an institution obtains CRM shall produce a higher risk-weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which an institution has no CRM.

‘Credit risk mitigation’ itself is defined in CRR art. 4(1)(57): means a technique used by an institution to reduce the credit risk associated with an exposure or exposures which that institution continues to hold.

In Annex II (to Regulation 2021/451) for templates C 07.00 and C 08.01 / C 08.02 in the instructions for the columns ‘Credit risk mitigation (CRM) techniques with substitution effects on the exposure’ (columns 0050-0100 in C07.00) and the columns ‘Credit risk mitigation (CRM) techniques with substitution effects on the exposure’ (columns 0040-0080 in C08.01/02), the following instruction is included: 'Credit risk mitigation techniques as defined in Article 4(1), point (57) of Regulation (EU) No 575/2013 that reduce the credit risk of an exposure or exposures via the substitution of exposures as described below in 'Substitution of the exposures due to CRM'.'

We observe some different interpretations which appears to result from the interpretation of “that reduce the credit risk”. The question is whether this “reduce the credit risk” should be read in a more broad interpretation of credit risk, i.e. that the credit risk has been reduced as a result of the institution being able to claim from the guarantor in case of a default of the original obligor/exposure. Or that it should be read in a way that the risk-weighted exposure amount or expected loss amount should be reduced.