EBA publishes final RTS for off-balance conversion factors under CRR

The European Banking Authority (EBA) has published its final draft regulatory technical standards (RTS) concerning the allocation of off-balance sheet items and the specification of factors that may constrain institutions' ability to cancel unconditionally cancellable commitments. Under the standardised approach to credit risk, the exposure values of off-balance sheet items depend on the application of specific percentages, which are determined by a bucket classification. Developed under Article 111(8) of the Capital Requirements Regulation (CRR), the RTS introduces assignment criteria for items not currently mapped to the five factor buckets in Annex I of the CRR, thereby supporting consistent classification. These criteria aim to reflect varying levels of conversion probability, considering the existence of financial covenants, non-credit related conditions, and obligor optionality.

Additionally, the RTS outlines four constraining factors that institutions should consider when deciding whether to cancel an unconditionally cancellable commitment, including: risk management, commercial, reputational, and litigation considerations. These factors are intended only as a starting point for institutions' assessments. To streamline reporting, the EBA proposes using the COREP framework for notifying items not covered in Annex I. The final report also provides a non-exhaustive list of examples to support institutions in classifying their off-balance sheet items. These examples are intended for illustrative purposes, clarifying how certain common items not explicitly mentioned in Annex I of the CRR should be categorised. Therefore, the list does not introduce any new obligations; its sole purpose is to simplify the application of the CRR. The draft RTS will be submitted to the European Commission for endorsement. Once endorsed, they will undergo scrutiny by the European Parliament and the Council of the EU before being published in the Official Journal of the European Union.

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