PRA is proposing changes to its Supervisory Statement on credit risk mitigation, to clarify how financial collateral is eligible as funded credit protection under the CRR. The CRR sets criteria for recognising collateral as eligible for CRM, which include that “the credit quality of the obligor and the value of the [financial] collateral shall not have a material positive correlation. PRA says the CRR is, to is, clear on how the CRR is relevant where, in a non-recourse loan, a significant fall in the value of the collateral can bring about obligor default. However, it now finds it necessary to clarify the application of CRR and of its own expectations.
PRA asks for comments by 10 April.