EBA opens consulation on definition of default under CRR

The European Banking Authority (EBA) launched a public consultation on its draft amended Guidelines on the application of the definition of default under the Capital Requirements Regulation (CRR). As part of its commitment to financial stability, transparency, and consistency, the EBA is proposing to maintain the existing 1 per cent threshold for net present value (NPV) loss in debt restructuring. This approach reflects a careful balance between flexibility for institutions and the need to uphold robust risk management standards. The consultation runs until 15 October 2025.

The proposal to retain the 1 per cent threshold is based on three key considerations:

– The current framework is already flexible and risk-sensitive, allows effective restructuring without misclassifying defaults, and is aligned with established accounting principles.
– Maintaining consistency with existing prudential standards helps safeguard the progress made in reducing non-performing loans and prevents regulatory arbitrage.
– A stable threshold supports reliable credit risk modelling, ensuring accurate capital and provisioning assessments across portfolios under both IRB and IFRS 9.

To allow for more proactive debt restructuring and reduce the potential burden on debtors, the EBA is considering a shortened probation period from 1 year to e.g. 3 months for certain forborne exposures. The draft amended Guidelines, however, do not incorporate this change, also because it would widen the gap between the definition of non-performing exposures and the definition of default.

Besides the changes brought forward by the revised CRR, the EBA is also proposing to increase the exceptional treatment of days past due at invoice level from 30 to 90 for non-recourse factoring arrangements to better reflect the economic reality of purchased receivables.

Consultation process

Responses to this consultation can be sent to the EBA by clicking on the “send your comments” button on the consultation page. Please note that the deadline for the submission of comments is 15 October 2025.

A public hearing will take place via conference call on 3 September 2025 from 11:00 to 12:00 CET. The deadline for registration is the 29 August 2025, 16:00 CET.

All contributions received will be published after the consultation closes, unless requested otherwise.

Legal basis and background
The definition of default is laid down in Article 178 of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR) and further detailed in Commission Delegated Regulation (EU) 2018/171 and the EBA Guidelines on the definition of default.

Under Article 178(7) of CRR, as amended by Regulation (EU) 2024/1623, the European Banking Authority is mandated to review the Definition of Default guidelines which were drafted by the EBA based on the mandate in Article 178(7) of Regulation (EU) No 575/2013. While the mandate explicitly mentions that the EBA shall duly consider the need for granting a sufficient flexibility to institutions when specifying what constitutes a diminished financial obligation, the mandate also allows for the review of other parts of the framework.

To read the document click here

Source: EBA