AI Summary of Article 395 Limits to large exposures
This regulation outlines exposure limits for financial institutions concerning clients and groups of connected clients, restricting exposures to 25% of Tier 1 capital or EUR 150 million, whichever is higher. Acknowledging systemic risk, these limits are tightened for global systemically important institutions (G-SIIs) to 15% of Tier 1 capital. Exceptionally, limits may be exceeded for trading book exposures under strict conditions, ensuring risk management protocols are maintained.
Additionally, the European Banking Authority (EBA) is tasked with establishing guidelines on shadow banking entities, assessing their impact on the financial stability and the broader market; recommendations are to be reviewed periodically, fostering a regulatory environment that balances risk control with economic growth.
Article 395 Limits to large exposures
1. An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or a group of connected clients the value of which exceeds 25 % of its Tier 1 capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25 % of the institution's Tier 1 capital or EUR 150 million, whichever is higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions does not exceed 25 % of the institution's Tier 1 capital.