Problem identification and baseline scenario

The Basel III international accords determine the ‘ diversification condition ’ for retail exposures eligible to the 75% preferential risk weight as the ‘g ranularity criterion ’ , where it is noted that no aggregate exposure to one counterparty can exceed 0.2% of the overall portfolio excluding defaulted exposures, unless the national supervisor has determined another method to ensure satisfactory retail diversification.

To retain the possibility that institutions which do not hold a granular enough retail portfolio can still apply the preferential risk weight, a diversification test is introduced that allows an objective quantitative assessment of no material correlation. The diversification test in its final, simplified version can be seen as a granularity test with additional flexibility, which does not impose significant additional burden on institutions, as it is based on already available information. In practice, institutions simply are to compare the share of their retail exposures that exceed the 0.2% granularity criterion to a pre-specified threshold.

Larger institutions can be in a better position to have less concentrated retail portfolios, in case retail exposures are a relevant part of the business activities of this institution, and in such case are expected to meet the 0.2% granularity criterion more easily compared with smaller institutions. Thus, diversification concerns are limited for larger retail portfolios, and the introduced measure is of particular relevance and provides flexibility for those institutions with retail portfolios with obligors for which the total amount owed by all these obligors or groups of connected clients to the institution, its parent and its subsidiaries (other than for RRE) is lower than EUR 500 million.

1. Oversigt

1.1 Referencer

1.2 Identificerede krav

1.3 Relaterede standarder

2. Identificerede krav

3. Relaterede standarder

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