AI Summary of Article 214 Sovereign and other public sector counter-guarantees
This summary outlines the conditions under which institutions may classify exposures as protected by guarantees, particularly when counter-guarantees are involved. Institutions may consider such exposures as protected if the counter-guarantee adequately addresses all credit risk elements, meets the stipulations of Articles 213 and 215(1) regarding guarantees, and demonstrates robust cover equivalent to a direct guarantee.
The applicable entities for these counter-guarantees include central and regional governments, local authorities, certain public sector entities, as well as multilateral development banks. Additionally, institutions may extend this treatment to exposures that, though not directly counter-guaranteed by listed entities, have a chain of guarantees that satisfies these criteria.
Article 214 Sovereign and other public sector counter-guarantees
1. Institutions may treat the exposures referred to in paragraph 2 as protected by a guarantee provided by the entities listed in that paragraph, provided that all the following conditions are satisfied:
(a) the counter-guarantee covers all credit risk elements of the claim;
(b) both the original guarantee and the counter-guarantee meet the requirements for guarantees set out in Articles 213 and 215(1), except that the counter-guarantee need not be direct;
(c) the cover is robust and nothing in the historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct guarantee by the entity in question.
2. The treatment set out in paragraph 1 shall apply to exposures protected by a guarantee which is counter-guaranteed by any of the following entities:
(a) a central government or a central bank;
(b) a regional government or a local authority;
(c) a public sector entity, claims on which are treated as claims on the central government in accordance with Article 116(4);