BaFin Issues Multiple Regulatory Announcements for Banks
The Federal Financial Supervisory Authority of Germany (BaFin) intends to set a countercyclical capital buffer of 0.75% of risk-weighted assets on domestic exposures and introduce a sectoral systemic risk buffer of 2.0% of risk-weighted assets on loans secured by residential real estate. At present, both buffers are set at 0% and the institutions do not have to fully meet the additional capital requirements until February 01, 2023. Additionally, BaFin published a draft circular to facilitate determination of the required stable funding factors to be applied to off-balance-sheet exposures in accordance with Articles 428p (10) and 428aq (10) of the Capital Requirements Regulation (CRR); these CRR articles set out provisions for calculation of the required stable funding. BaFin is requesting comments on the draft circular until January 28, 2022. BaFin also published circulars on the application of certain guidelines of the European Banking Authority (EBA).
Specifically, BaFin has published following circulars:
- BaFin issued a circular (01/2022) on the application of the EBA guidelines on exceptions to the large exposure limits pursuant to the CRR (EBA/GL/2021/09). The EBA guidelines specify the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance. BaFin incorporated the guidelines into its administrative practice on January 01, 2022.
- BaFin published a circular (16/2021) that sets out further requirements for own estimates of loss given default (LGD) as part of the internal ratings-based (IRB) approach. With this circular, BaFin is adopting the EBA guidelines on downturn LGD estimation as well as the guidelines on credit risk mitigation for institutions applying the IRB approach with own estimates of LGDs. BaFin incorporated the guidelines into its administrative practice on January 01, 2022.
EBA had published, in March 2019, the guidelines specifying how institutions should quantify the estimation of LGD appropriate for conditions of an economic downturn; these guidelines focus on requirements for quantification of the calibration target used for downturn LGD estimation. Then, in May 2020, EBA had published the guidelines on credit risk mitigation for institutions applying the advanced IRB approach, with own estimates of LGD; these guidelines clarify the application of the credit risk mitigation provisions, as laid down in CRR and applicable to institutions using the advanced IRB approach. The guidelines on credit risk mitigation clarify the eligibility requirements for different credit risk mitigation techniques— namely, funded and unfunded credit protection—available to institutions.
Related Links (in German)
- Press Release on Setting of Capital Buffers
- Press Release on Stable Funding Requirements
- Draft Circular on Stable Funding Requirements
- Press Release on Application of EBA Guidelines Large Exposure Limits
- Circular on Application of EBA Guidelines on Large Exposure Limits
- Press Release on Requirements for Own LGD Estimates
- Circular on Requirements for Own LGD Estimates
Keywords: Europe, Germany, Banking, CCyB, Systemic Risk Buffer, CRR, NSFR, IRB Approach, LGD, Credit Risk, Credit Risk Mitigation, Basel, Large Exposures, Loss Given Default, Regulatory Capital, BaFin
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