European Council Adopts Creditor Hierarchy and IFRS 9 Rules for Banks
The European Council adopted two legislative acts on banking: the first is a directive on the ranking of unsecured debt instruments in insolvency proceedings (bank creditor hierarchy) and the second is a regulation on transitional arrangements to phase in the regulatory capital impact of the International Financial Reporting Standard (IFRS) 9. The draft regulation related to IFRS 9 also contains a phase-out of provisions on the large exposures treatment of public-sector debt denominated in non-domestic EU currencies. The Directive and Regulation shall enter into force on the day following that of their publication in the Official Journal of the European Union. The regulation on IFRS 9 transitional arrangements shall apply from January 01, 2018.
The regulation on IFRS 9 and large exposures is intended to mitigate the potential negative regulatory capital impact of the introduction of IFRS 9 on banks. Use of IFRS 9 by banks may lead to a sudden increase in expected credit loss (ECL) provisions and a consequent sudden fall in their regulatory capital ratios. Transitional arrangements are needed from January 01, 2018, consistent with use of the new accounting standard. It was, therefore, decided to split and fast-track the entry into force of certain provisions from a broader November 2016 EC proposal amending regulation 575/2013 on bank capital requirements. The resulting draft regulation will allow banks to add back to their common equity tier 1 capital a portion of the increased ECL provisions as extra capital during a five-year transitional period. That added amount will progressively decrease to zero during the course of the transitional period. The draft regulation also provides for a three-year phase-out of an exemption from the large exposure limit for bank exposures to public-sector debt denominated in the currency of another member state.
Related Link: Press Release
Keywords: Europe, EU, Banking, Accounting, IFRS 9, Transitional Arrangements, Large Exposures, Creditor Hierarchy, European Council
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Previous Article
Basel III Monitoring Updates for August 2017Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
