European Parliament published a report that summarizes the state of play of the various workstreams on completing the Banking Union. This report, which will be regularly updated, covers both risk-sharing (European Deposit Insurance Scheme or EDIS) and risk-reduction measures. The report contains a summary on the status of work on reducing national options and discretions, review of the macro-prudential policy framework, harmonization of national deposit guarantee schemes, progress toward Minimum Requirement for own funds and Eligible Liabilities/total loss-absorbing capacity (MREL/TLAC), operationalizing the Single Resolution Fund (SRF), consistent application of bail-in rules, insolvency law, legislation related to nonperforming loans (NPLs), amendments to the Capital Requirements Directive and Regulation to implement the recent Basel standards, and treatment of sovereign risk.
With regard to the CRR 2 and CRD 5, the report mentions the following key elements of the proposal implementing the important Basel standards (leverage ratio, net stable funding ratio (NSFR), trading book):
- A binding 3% leverage ratio
- A binding NSFR, which will require financial institutions to finance their long-term activities with stable sources of funding
- Higher more risk-sensitive capital requirements for institutions that trade in securities and derivatives, following the Basel fundamental review of the trading book
- More proportionate rules for smaller and non-complex banks
- Rules facilitating lending to small and medium-size enterprises (SMEs) and funding infrastructure projects
- Clarified conditions for the application of pillar 2 capital add-ons
The report also provides terms of reference on selected elements for the common backstop to the SRF. As per the report, the Common Backstop would enter into force ahead of 2024 if sufficient progress is achieved in risk-reduction measures, which are to be assessed by 2020. Overall, the phase-in for SRF has been expected during 2016 to 2023. After an eight-year transitional period, the SRF will be fully mutualized, with the target size of approximately EUR 60 billion—that is, 1% of covered deposits of all credit institutions authorized in the Banking Union, at the end of 2023. Furthermore, leaders agreed to the Eurogroup proposals of setting up a High Level Working Group to work on further steps on EDIS, with a report expected by June 2019. The report states that the EC proposal articulates the introduction of EDIS in three stages: the re-insurance phase (2017), the co-insurance phase (2020), the full insurance phase (2024).
Related Link: Report
Keywords: Europe, EU, Banking, CRR/CRD, SRF Backstop, EDIS, Basel III, Banking Union, European Parliament
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
PRA published updates in relation to the 2021 Supervisory Benchmarking Portfolio exercise.
FED adopted a proposal to extend for three years, with revision, the capital assessments and stress testing reports (FR Y-14A/Q/M; OMB No. 7100-0341).
HKMA revised the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.