The European Banking Authority (EBA) has published its final guidelines around exposures associated with high risk under the Capital Requirements Regulation (CRR).
CRR is an EU-wide regulation which requires banks to set aside enough capital in order to cover unexpected losses and keep themselves solvent in a crisis. The level of capital required depends on the risk attached to assets of each bank, and so the riskier the assets, the more capital the bank needs to set aside.
The total amount of capital put aside should equal at least 8 per cent of risk-weighted assets.
These new guidelines provided by the EBA will give a higher degree of comparability with current practices in identifying exposures associated with high risks. It will also ease the transition to impending regulatory revision, with changes to Basel standards only applying from 2022.
The first section of guidelines clarifies the notions of investments in venture capital firms and private equity.
In a release, the EBA said, “This step was triggered by the lack of guidance available to the public on these notions and because definitions are deemed necessary to ensure harmonisation on the types of exposures that are considered as investments in venture capital firms and private equity.”
The second area specifies the types of exposures which should be considered as high risk and offers an identification scheme to identify these instances. By providing this assistance, the EBA hopes enterprises will be able to single-out exposures carrying high risk of loss.
Last year, The European Banking Authority (EBA) published two reports measuring the impact of implementing Basel III reforms and monitoring the current implementation of liquidity measures.
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