EBA is clarifying the application of the prudential framework in response to issues raised as a result of the COVID-19 pandemic. The clarifications mainly cover the EBA guidelines on moratoria and COVID-19 reporting, operational risk, downturn LGD estimation, and the credit risk mitigation framework. This report is part of the wider monitoring of the implementation of COVID-19 policies by EBA as well as of the application of existing policies under these exceptional circumstances.
The clarifications update the frequently asked question (FAQ) section of the EBA report (version published on August 07, 2020) on COVID-19 implementation policies. The report includes additional clarifications on the application of the guidelines on moratoria and on COVID-19 reporting and disclosure as well as on the operational risk taxonomy to be used in light of the COVID-19 events. The guidelines on COVID-19 reporting and disclosure of this report have been reviewed to include answers to additional issue that have been raised by the competent authorities and credit institutions regarding the implementation of the COVID-19 reporting and disclosure guidelines. Upon review of the operational risk guidelines, EBA has included answer to an additional question raised by institutions and competent authorities on general aspects concerning the COVID-19-related operational risk events and losses and on how to identify and quantify the “one-off” attribute of the COVID-19 operational risk costs.
EBA has also added, to the report, two new sections: one section provides further details on the likely identification of a COVID-19-triggered downturn period and its incorporation into downturn loss given default, or LGD, estimation while the other section offers clarifications on the treatment of the COVID-19 public guarantee schemes as a form of credit risk mitigation under the advanced internal ratings-based, or A-IRB, approach. EBA expects to update this report later, as additional policy issues are likely to arise in the context of the monitoring of the implementation of COVID-19 policies.
Keywords: Europe, EU, Banking, COVID-19, Basel, Reporting, FAQ, Credit Risk, Operational Risk, Disclosures, Regulatory Capital, IRB Approach, Loan Moratorium, Loan Guarantee, EBA
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