EBA consults on the Risk Weight for defaulted exposures in the aftermath of the COVID-19 pandemic

The European Banking Authority (EBA) launched on the 24th of June a public consultation on amendments to its RTS on credit risk adjustment on a revision of the treatment of defaulted exposures under the SA. The proposed amendments allow for the recognition of write-downs accounted in the transaction price of the exposure, which are retained by the seller, in the credit risk adjustments recognised for the determination of the RW of defaulted exposures applied by the buyer.
In this alert you will read more about how lowering the SA risk weight translates into a shift from UL (unexpected loss) to EL (expected loss), the corresponding implications for both the buyer and the seller, as well as the impact may have on CET1 capital.