Question
As per CRR Article 120(para 3, subpara c), it states: "If there is a short-term assessment and such an assessment determines a less favourable risk weight than the use of the general preferential treatment for short-term exposures, as specified in paragraph 2, then the general preferential treatment for short-term exposures shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term assessment." Question: 1. Is the term claim and exposure used interchangeably and mean the same? 2. What is meant by unrated short term claim in this paragraph? If there is a general issuer rating available for the counterparty, but no issue specific rating for the exposure to the counterparty, will the exposures with residual maturity of less than 3 months be classed as Unrated and not eligible for preferential risk weight treatment as per CRR Article 120 (2)? 3. Also, for ex- if the bank has trading book exposure to this institution for exposure less than 3 months. But this institution has issued short term debt, but the bank has no exposure to it, in that case which rating will be used to risk weight the exposure in the trading book. Will it be the issuer rating or short term debt rating the institution has issued which the bank has no exposure?
Background on the question
As per CRR Article 120 (3c), it is not clear what is meant by unrated short term claim? Since short term claims are usually issue specific, does it mean any exposure to the institution with less than three months of residual maturity will be classed as Unrated in spite of issuer rating for the institution available? 2. Also, for ex- if the bank has trading book exposure to this institution for exposure less than 3 months. But this institution has issued short term debt, but the bank has no exposure to it, in that case which rating will be used to risk weight the exposure in the trading book. Will it be the issuer rating or short term debt rating the institution has issued which the bank has no exposure?
Answer
This question has been rejected because the issue it deals with is already explained or addressed in Article 120(3)(c), Article 138, and Article 139(1),(2), (4) of Regulation (EU) No 575/2013.For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.