The European Banking Authority has issued final Guidelines on proportionate retail diversification methods under the Capital Requirements Regulation, setting a harmonised way for institutions to evidence that eligible retail portfolios are sufficiently diversified to apply the preferential 75% risk weight under the standardised approach for credit risk, with a proportionality overlay for smaller institutions. As a starting point, the Guidelines assess granularity by requiring that no single exposure to a counterparty or group of connected clients exceeds 0.2% of the total eligible retail portfolio. Where this benchmark cannot be consistently met, institutions may still apply the preferential risk weight provided that no more than 10% of the eligible retail portfolio is above the 0.2% threshold. The final text adopts a one-step approach (rather than the iterative method proposed as baseline in consultation) and increases the tolerance from 5% to 10%. It also clarifies how to assess diversification for securitised retail exposures, distinguishing originator and investor treatments, and introduces a limited, temporary derogation for investors where obligor-level information is not available under the relevant transparency templates. The Guidelines are final and awaiting translation into the EU official languages.
European Banking Authority finalises retail diversification test for 75% standardised risk weight with 0.2% benchmark and 10% tolerance
The European Banking Authority issued final Guidelines on proportionate retail diversification under the Capital Requirements Regulation, establishing a harmonised approach for institutions to demonstrate sufficient diversification in eligible retail portfolios to apply a 75% preferential risk weight. The Guidelines include a granularity benchmark, a one-step approach, increased tolerance levels, and provisions for securitised retail exposures, with a temporary derogation for investors lacking obligor-level information.