EBA final guidelines on proportionate retail diversification methods under CRR

The European Banking Authority (EBA) published final guidelines on proportionate retail diversification methods under Article 123(1) of the Capital Requirements Regulation (CRR). The guidelines seek to establish a harmonised and more proportionate framework for assessing whether retail portfolios qualify for the preferential 75% risk weight for retail exposures under the standardised approach for credit risk. Under Basel III, a baseline granularity benchmark of 0.2% applies, meaning that retail portfolios are sufficiently granular if no aggregate exposure to a single counterparty or group of connected clients exceeds 0.2% of the overall retail portfolio.

The 2024 consultation presented two alternatives for assessing diversification, and the final guidelines confirm the adoption of the "one-step" approach, on the grounds that it is more proportionate and less burdensome than the iterative method that was also proposed. The consultation originally proposed a diversification threshold of 5%, which has been raised to 10%. This means that institutions may exceed the baseline provided that no more than 10% of the eligible retail portfolio exceeds the 0.2% benchmark. The EBA confirmed that it increased the threshold in its final guidelines to ease the impact on small and medium-sized institutions.

The guidelines also clarify the treatment of securitised retail exposures, distinguishing between diversification assessments applicable when institutions act as originators and when they act as investors. A limited, temporary derogation for investor institutions is also introduced where obligor-level information is unavailable under the applicable transparency templates.

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