The EBA Consults On Guidelines On Proportionate Retail Diversification Methods

The European Banking Authority (EBA) today launched a consultation on its draft Guidelines that will specify proportionate retail diversification methods to be eligible for the preferential risk weight under the standardised approach for credit risk. The Consultation paper follows the recommendations from the EBA Advisory Committee on Proportionality for 2024 in the credit risk area The consultation runs until 12 February 2025.

In its draft Guidelines the EBA is setting out criteria to assess under which circumstances, retail exposures can be considered as diversified under the credit risk standardised approach for determining capital requirements in the Capital Requirements Regulation (CRR). The requirement to have a diversified portfolio, (i.e. that a portfolio consists of a significant number of exposures with similar characteristics) ensures that the risks credit institutions will have to bear for such exposures are reduced. In addition, the requirement to be diversified is mandatory for retail exposures to be assigned the preferential retail risk weight under the Standardised Approach for credit risk.

As a starting point, the EBA is considering the 0.2% granularity criterion set out in the Basel framework, according to which no individual exposure in the retail portfolio should exceed 0.2% of the retail portfolio. Under the EBA’s proposal, institutions with exposures above the 0.2% granularity criterion will, however, still be considered sufficiently diversified, as long as no more than 10% of their retail portfolio exceeds the 0.2% threshold. This adjustment ensures a proportionate and harmonised approach, which takes into account the significant number of smaller institutions in EU. In addition, the approach taken is simple, which allows the calculation to be done by all institutions and is thereby proportionate to the size of institutions and their retail portfolios. 

Consultation process

Comments to the consultation paper can be sent by clicking on the "send your comments" button on the EBA's consultation page. The deadline for the submission of comments is 12 February 2025.

The EBA will hold a virtual public hearing on this consultation paper on Monday 16 December 2024, from 15:00 to 16:00 CET. The EBA invites interested stakeholders to register using this link by Thursday 12 December 2024 at 16:00 CET. The dial-in details will be communicated to those who have registered for the meeting.

All contributions received will be published following the end of the consultation, unless requested otherwise.

Legal basis and background

The draft Guidelines have been developed according to Article 123(1) of Regulation (EU) No 575/2013 (CRR), as amended by Regulation (EU) 2024/1623.