5. Alternative approach for exposures to central governments

In line with the definition of ‘group of connected clients’ under the second last subparagraph of Article 4(1)(39) of Regulation (EU) No 575/2013, institutions may assess the existence of a group of connected clients separately for each of the persons directly controlled by or directly interconnected with the central government (‘ alternative approach’).¹²

¹² In accordance with Article 400(1)(a) of Regulation (EU) No 575/2013, asset items constituting claims on central governments, which unsecured would be assigned a 0% risk weight under the standardised approach, are exempted from the application of Article 395(1) (limits to large exposures) of the same regulation.

The same provision allows for a partial application of the alternative approach, assessing separately the natural or legal persons directly controlled by or directly interconnected with the central government (see scenario CG 1 in the annex).

The provision also makes clear that:

• a) The central government is included in each of the groups of connected clients identified separately for the natural or legal persons directly controlled by or directly interconnected with the central government (see scenario CG 2 in the annex).
• b) Each group of connected clients under point (a) includes also persons controlled by or interconnected with the person who is directly controlled by or directly interconnected with the central government (see scenario CG 3 in the annex).

Where the entities directly controlled by or directly interconnected with the central government are economically dependent on each other, they should form separate groups of connected clients (excluding the central government), in addition to the groups of connected clients formed in accordance with the alternative approach (see scenario CG 4 in the annex).

In line with the last sentence of the second last subparagraph of Article 4(1)(39) of Regulation (EU) No 575/2013, this section of the guidelines is also applicable to regional governments or local authorities to which Article 115(2) of that Regulation applies, and natural or legal persons directly controlled by or interconnected with these regional governments or local authorities.