Recital 21

(21) While the new treatment under the standardised approach for unrated specialised lending exposures laid down in the Basel III standards is more granular than the current standardised treatment of exposures to corporates, the former is not sufficiently risk-sensitive to be able to reflect the effects of comprehensive security packages and pledges usually associated with those exposures in the Union, which enable lenders to control the future cash flows to be generated over the life of the project or asset. Due to the lack of external rating coverage of specialised lending exposures in the Union, that new treatment might also create incentives for institutions to stop financing certain projects or take on higher risks in otherwise similarly treated exposures which have different risk profiles. Whereas the specialised lending exposures are mostly financed by institutions using the IRB Approach that have in place internal models for those exposures, the impact might be particularly significant in the case of object finance exposures, which could be at risk of discontinuation of the activities, in the particular context of the application of the output floor. To avoid unintended consequences of the lack of risk sensitivity in the Basel III standards for unrated object finance exposures, object finance exposures that comply with a set of criteria capable of lowering their risk profile to high quality standards compatible with prudent and conservative management of financial risks, should benefit from a reduced risk weight on a transitional basis. That transitional arrangement should be assessed in a report prepared by EBA.

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Source: EUR-Lex CELLAR · retrieved 2026-09-04 · Text as adopted (Official Journal); later amendments are not incorporated in this text.