Featured Product

    ECB Consults on Supervisory Approach to Consolidation in Banking

    July 01, 2020

    ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector. As per the guide, the consolidation projects must be based on a credible business and integration plan, improve the sustainability of the business model, and respect high standards of governance and risk management. The guide also addresses the key issues such as Pillar 2 capital requirements of the combined entity, treatment of bad will, and permission for temporary use of the already approved internal models. The consultation on this guide ends on October 01, 2020.

    The proposed guide should enhance the transparency and predictability of supervisory actions and help credit institutions design prudentially sustainable projects. The guide covers the:

    • Overall approach to the supervisory assessment of consolidation projects
    • Supervisory expectations regarding consolidation projects
    • Supervisory approach to key prudential aspects of the consolidation transaction
    • Ongoing supervision of the newly combined entity
    • Application of this framework to consolidation transactions involving less significant institutions

    With regard to the supervisory approach to key prudential aspects of the consolidation transaction, the guide highlights that, base on past experience, three supervisory factors can play a key role in determining the feasibility of a business combination: post-merger Pillar 2 capital requirements and Pillar 2 Guidance, the prudential treatment of badwill, and the transitional arrangements for the use of internal models. ECB will not penalize credible integration plans with higher capital requirements. The starting point for capital will be the weighted average of the two banks’ Pillar 2 capital requirements and Pillar 2 guidance prior to consolidation. ECB will look to the use of badwill by banks for risk-reduction and value-added investments and accept the temporary use of existing internal models, subject to a strong roll-out plan. Past experience shows that there is no “one size fits all” approach when it comes to banking sector consolidation. Consequently, a case-by-case approach based on proportionality in the application of the principles set out in the guide should be expected.

    ECB encourages parties envisaging consolidation to engage with it early on in the process. This will allow ECB to give preliminary feedback on such projects. ECB Banking Supervision examines, from a prudential perspective, the consolidation projects brought to its attention. This assessment is aimed at ascertaining that the entity resulting from the business combination will meet all prudential requirements when the transaction is implemented. The assessment will also ensure that the business combination resulting from the transaction is sustainable and is likely to allow for permanent compliance with the prudential requirements in the future too. The profitability and sustainability of banks’ business models are among the supervisory priorities for 2020 and are important for increasing the resilience of banks and their capacity to service the economy, including in the context of COVID-19 pandemic.


    Related Links

    Comment Due Date: October 01, 2020

    Keywords: Europe, EU, Banking, SSM, Pillar 2, Basel, Proportionality, Regulatory Capital, Internal Models, Banking Supervision, Consolidation of Banks, ECB

    Featured Experts
    Related Articles
    News

    HKMA Sets Out Regulatory Treatment for Personal Loan Guarantee Scheme

    HKMA has published a circular that sets out the regulatory and reporting treatment for loans that participating authorized institutions may grant to eligible borrowers under the 100% Personal Loan Guarantee Scheme.

    April 20, 2021 WebPage Regulatory News
    News

    ECB Completes Targeted Review of Internal Models of Banks

    ECB published the results of the assessment of internal models that banks use to calculate risk-weighted assets for credit, market, and counterparty credit risks.

    April 19, 2021 WebPage Regulatory News
    News

    PRA on Regulatory Treatment of Loans Under Mortgage Guarantee Scheme

    PRA published a statement on the regulatory treatment of retail residential mortgage loans under the Mortgage Guarantee Scheme, or MGS.

    April 19, 2021 WebPage Regulatory News
    News

    FCA Consults on Rules and Reporting Forms for Investment Firms Regime

    FCA is consulting, via CP21/7, on the second phase of proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR).

    April 19, 2021 WebPage Regulatory News
    News

    HMT and BoE Decide to Explore Central Bank Digital Currency in UK

    HM Treasury and BoE announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential central bank digital currency in UK.

    April 19, 2021 WebPage Regulatory News
    News

    EIOPA Sets Out Expectations on Use of Climate Risk Scenarios in ORSA

    EIOPA published an opinion to set out its expectations on the supervision of the integration of climate change risk scenarios by insurers in their Own Risk and Solvency Assessment (ORSA).

    April 19, 2021 WebPage Regulatory News
    News

    Bundesbank Updates AnaCredit Reporting Requirements

    Bundesbank published two circulars on AnaCredit reporting requirements. Circular 27/2021 covers changes to the reporting of branches, additional attributes to be reported for investment funds from August 01, 2021, and updates to the list of international organizations.

    April 16, 2021 WebPage Regulatory News
    News

    EC Sets Out Standards for MREL Reporting by Competent Authorities

    EC published the Implementing Regulation 2021/622 that lays down implementing technical standards for reporting of the minimum requirement for own funds and eligible liabilities (MREL).

    April 16, 2021 WebPage Regulatory News
    News

    BCBS to Advance Work on Suptech, Climate Risk, and Basel Monitoring

    BCBS has set out the strategic work priorities, as part of its the work program for 2021-22.

    April 16, 2021 WebPage Regulatory News
    News

    PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK

    PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.

    April 15, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6874