The European Banking Authority (EBA) has published an opinion to the European Commission (Commission) on the appropriateness of continuing to apply the 180 day past due (DPD) exemption for material exposures under the Capital Requirements Regulation (CRR).
Under Article 506 of the CRR, the EBA must report to the Commission, by 31 December 2017, on how replacing 90 days by 180 days past due in Article 178(1) of the CRR impacts risk-weighted exposure amounts and the appropriateness of the continued application of that provision after 31 December 2019.
The EBA found that only a limited number of institutions in the EU currently make use of the 180 DPD criterion. The EBA analysed the impact of removing the 180 DPD criterion for these institutions on risk weighted exposure amounts and capital ratios.
In the light of the widespread use of the 90 DPD criterion in the EU, the limited use of the 180 DPD criterion, the variability in risk weights caused by the 180 DPD criterion and future changes in the accounting framework, the EBA recommends that the Commission disallows the application of the 180 DPD criterion. However, to allow the institutions currently using the 180 DPD to adjust to the 90 DPD regime, the EBA recommends that there is an appropriate transitional period.