On January 9, 2024, the European Banking Authority (EBA) issued an opinion addressed to the Bank of Italy following the notification regarding the decision to introduce a partial derogation of Article 129, para. 1, lett. c), of the Capital Requirements Regulation, concerning the eligibility conditions for guaranteed bonds in relation to preferential risk weighting treatments.
Indeed, based evidence provided by the Bank of Italy, it was found that Italy has a potential issue of concentration in the application of the CQS1-CQS2 requirement – related to credit quality classes (CQS).
Based on this, considered that Article 129 specifies that eligible guaranteed bonds for preferential risk weighting treatment may be guaranteed by exposures to credit institutions meeting CQS1 and CQS2 requirements, EBA confirms that -following consultation with the EBA- the Bank of Italy may grant partial exemption from this requirement, in cases where significant potential concentration issues can be documented in the relevant Member States.
The Bank of Italy shall, however, monitor the situation, assessing the need to grant the exemption on a case-by-case basis, reserving the right to revoke the measure if the concentration issues are no longer given.