Mandate
The EBA has prepared the report per the mandate given to it under the Capital Requirements Regulation 3 (CRR3), which requires the European Supervisory Authority to report to the European Commission on the eligibility and use of credit insurance policy as credit risk mitigation (CRM). Therefore, in the report the EBA reviews the prudential banking framework on CRM in relation to those changes affecting credit insurance that are brought in by the final Basel III framework.
Contents
The report describes the relevant features of the regulatory framework in relation to the recognition of unfunded credit protection (UFCP) and the key changes brought about by the CRR3 that impacts the treatment of credit insurance. It also discusses the risk weight floor imposed on the recognition of UFCP and the analysis, set out in sections 1.4 and 1.5, are new compared to what was presented in previous EBA opinions and frames the next step of the argumentation by defining the target risk parameters. The report then addresses the quantification of the loss given default (LGD) risk parameter for direct exposures to credit insurance and discusses the appropriateness of the removal of the possibility to model the LGD risk parameters for direct exposure toward the protection provider, i.e. the credit insurer, and of the regulatory calibration of the regulatory LGD risk parameter under the so-called Foundation IRB approach.