risk-weights
In times of rising minimum requirements for regulatory capital, risk-weights applied for the calculation of
a bank’s stock of risk-weighted assets have gained further importance. Regulatory capital is a bank’s most
expensive source of funding and bank investors are optimising their portfolios taking into account the capital
consumption of their positions.
Bank investors based in the European Economic Area (EEA) can apply preferential risk-weights for covered
bonds, fulfilling the criteria laid down in Article 129 CRR compared to senior unsecured bank bonds. A lower
risk-weight means that banks have to hold less regulatory capital against a given position which benefits the
average funding cost and thus the spread which is required. Covered bonds not fulfilling those criteria receive
the same treatment as senior unsecured bonds. Please refer to Article 2.2 of the Generic Section, for details
on the determination of risk-weights for covered bonds