ESRB Issues Opinion on Extension of Macro-Prudential Measure in France
ESRB published an opinion on the notification of the French High Council for Financial Stability (HCSF) to extend application period of the macro-prudential measure regarding requirements for large exposures. The measure aims to limit concentration risk with regard to highly indebted large French non-financial corporations or NFCs. HCSF proposed to extend the period of application of the existing measure for one additional year, until June 30, 2021. ESRB opines that the extension of the proposed measure serves as a helpful backstop to ensure risk diversification and safeguard the resilience of the banking system in France.
The measure consists of a tightening of limits for large exposures of French systemically important credit institutions to highly indebted large NFCs that have their registered office in France. The tightened limit requires systemically important French credit institutions to ensure that exposures to highly indebted large NFCs are no greater than 5% of eligible capital. An NFC is to be classified as highly indebted if its ultimate parent company has both a net leverage ratio greater than 100% and its interest coverage ratio is below 3. A credit institution applies the measure to the exposures—where it has an original exposure to the highly indebted NFC or to the group of connected clients to which the highly indebted NFC belongs—equal to or larger than EUR 300 million. This measure had been in force since July 01, 2018, in line with Article 458 of the Capital Requirements Regulation or CRR, and expired at the end of June 2020.
ESRB opines that the proposed extension of the measure does not contradict the overall aim of guaranteeing lending to the real economy throughout the COVID-19 crisis. The extension of the measure does not per se set a limit to the overall borrowing of highly indebted large NFCs, but ensures that individual systemic credit institutions cannot have too large a concentration of their exposures toward any one individual NFC. ESRB, therefore, supports the intention of HCSF to extend the period of application of its stricter national measure. ESRB reiterates that the issues raised in its assessment of the original measure require continued follow-up, as described below, by the French authorities to ensure the effectiveness of the measure and avoid unwarranted consequences:
- ESRB states that close monitoring of the impact of the measure and the evolution of the risk must continue, particularly if the 5% threshold for large exposures were to be frequently breached as a consequence of the COVID-19 pandemic.
- ESRB continues to encourage French authorities to explore alternative options for addressing financial stability concerns, in particular if risks continue to develop unfavorably. These options include, but are not limited to, borrower-based measures and the systemic risk buffer after its sectoral use is permitted.
Related Links
Keywords: Europe, EU, France, Banking, CRR, Large Exposures, Opinion, Systemic Risk, Basel, HCSF, Macro-Prudential Policy, ESRB
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
EC Outlines Best Practices for Implementing COVID Relief MeasuresRelated Articles
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.
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.
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.
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).
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.
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).
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.
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).
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.
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.
