EBA Consults on Guidelines to Assess Breaches of Large Exposure Limits
EBA proposed the guidelines that set out criteria to assess the breaches of large exposure limits specified under the Capital Requirements Regulation (CRR). The guidelines contain criteria to determine the exceptional cases, information to be provided to the competent authority in case of a breach of the large exposure limits, criteria to determine the appropriate time to return to compliance with the limits, and measures to be taken to ensure the timely return to compliance of the institution with the limits. The comment period on the proposed guidelines ends on May 17, 2021 and the guidelines are expected to apply from March 01, 2022.
The proposed guidelines clarify that any breach of the large exposure limits of Article 395(1) of CRR should always be considered as an exceptional case. The guidelines specify that competent authorities should consider whether the breach was a rare event, whether the institution could foresee the event when it had applied a proper and effective risk management, and whether it was caused by reasons beyond the control of an institution. If the breach does not fulfil these criteria, the competent authority should not grant the institution more than three months to restore compliance with the large exposure limit. The guidelines include a number of criteria that should help a competent authority make a decision regarding the time given to restore compliance:
- Institution’s record of breaches and its promptness in notifying the breach or the remedial actions to return to compliance
- Reasons, complexity, and magnitude of the breach
- Overall financial situation of the institution and the overall risk concentration in the banking book
- Type of counterparty and its creditworthiness
- Measures already taken to address the breach
The proposed guidelines specify that, when an institution is granted more than three months to comply with the limits, it should present a compliance plan to the competent authority with a number of measures as listed in the guidelines. As a general rule, the compliance plan should include arrangements to reduce the exposure, measures to increase the institution’s own funds, arrangements to reinforce internal risk management and control processes, procedures to ensure the timely implementation of the measures, and a detailed timetable to implement the planned measures. The proposal provides guidance from a going-concern perspective. Gone-concern situations in which an institution is in the process of restructuring or undergoes a similar crisis-induced scenario are consequently outside the scope of these guidelines. In such situations, measures are needed that go well beyond restoring compliance with the large exposures framework of the CRR.
Related Links
Comment Due Date: May 17, 2021
Keywords: Europe, EU, Banking, Large Exposures, CRR, Basel, Competent Authorities, Concentration Risk, Credit Risk, EBA
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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
Swedish Government Proposes Changes to Crisis Management RulesRelated 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.