Featured Product

    EBA Supports Extension of Tighter Large Exposure Limits in France

    June 03, 2021

    EBA published an opinion after the French macro-prudential authority, the Haut Conseil de Stabilité Financière, or HSCF, notified EBA about its intention to extend, for a second time, a measure introduced in 2018 to safeguard the resilience of systemic institutions from excessive risk-taking and to prevent the build-up of future vulnerabilities. The measure intends to tighten, for French global or other systemically important institutions (G-SIIs or O-SIIs), the large-exposure limits applicable to large and highly indebted non-financial corporations or groups of connected non-financial corporations that are assessed to be highly indebted. Based on the evidence submitted, EBA does not object to the extension of the proposed measure, which will be applied for two years from July 01, 2021 to June 30, 2023.

    With the application of this measure, French systemically important institutions should not have individual exposures exceeding 5% of their tier 1 capital for non-financial corporations or for groups of connected non-financial corporations assessed to be highly indebted and resident in France. The 5% limit will act as a backstop to safeguard these institutions from excessive risk-taking and prevent the build-up of future vulnerabilities. In the opinion, EBA acknowledged that the measure helps promote financial stability and prevent future systemic shocks to the French and EU economies by shielding individual systemically important lenders from idiosyncratic corporate defaults. In light of the increase in corporate indebtedness following the COVID-19 pandemic, EBA encouraged the French authorities to closely monitor the developments during the application horizon of the measure and to be vigilant about any unintended consequences on credit supply. The proposed two-year extension of the period of application of the measure comes after an unprecedented shock following COVID-19 while uncertainty still surrounds the economic outlook.

    During this time, total credit to the non-financial corporations sector increased substantially while leverage in the non-financial corporations sector remained elevated. Large non-financial corporations face a further deterioration of their relative equity position and interest coverage ratio as a continuation of the trend observed before the pandemic. Against this backdrop, the considerations regarding corporate indebtedness, which led the HCSF to enact the measure in 2018 and extend it in 2020, remain relevant. As mentioned already, EBA does not object to the two-year extension of the period of application of the current measure. However, according to the figures provided by the HCSF, the number of large firms breaching both net leverage and interest coverage ratio thresholds increased over 2019. These indicators of firms’ health, but also the number of firms breaching the thresholds for indebtedness, are expected to deteriorate further, as confirmed by an additional simulation provided by the HCSF. In light of the above, EBA encourages French authorities to closely monitor the developments during the application horizon of the measure and to be vigilant about any unintended consequences on credit supply.

     

    Related Links

    Keywords: Europe, EU, France, Banking, Large Exposures, G-SII, O-SII, COVID-19, Systemic Risk, Credit Risk, Regulatory Capital, HSCF, Basel, Macro-Prudential Policy, EBA

    Featured Experts
    Related Articles
    News

    PRA Proposes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    PRA proposed rules (in CP12/21) for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies that have been approved or designated in accordance with Part 12B of the Financial Services and Markets Act 2000 (FSMA).

    June 21, 2021 WebPage Regulatory News
    News

    ECB Extends Leverage Ratio Relief for Banks Until March 2022

    ECB Banking Supervision announced that euro area banks it directly supervises may continue to exclude certain central bank exposures from the leverage ratio until March 2022.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Treatment of Credit Valuation Adjustments

    OSFI decided to increase the Domestic Stability Buffer from 1.00% to 2.50% of total risk-weighted assets, with effect from October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    HKMA Requires Banks to Submit Plans for Fintech Adoption

    HKMA is requesting banks to participate in a tech baseline assessment, which forms part of the HKMA Fintech 2025 strategy.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Operational Risk Capital Data Management Expectations

    OSFI published two documents to consult on the management of operational risk capital data for institutions required, or for those applying, to use the Basel III standardized approach for operational risk capital in Canada.

    June 18, 2021 WebPage Regulatory News
    News

    NGFS on Addressing Financial Stability Issues from Biodiversity Loss

    The NGFS Study Group on Biodiversity and Financial Stability published a Vision paper exploring the case for action in addressing the financial stability concerns arising from biodiversity loss.

    June 18, 2021 WebPage Regulatory News
    News

    ACPR Publishes CREDITIMMO Version 2.3.0 Taxonomy for Banks

    ACPR published the final version of CREDITIMMO 2.3.0 taxonomy for the decree of October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    EC Prolongs Italian Guarantee Scheme for Non-Performing Loans

    EC, has approved, under the EU State Aid rules, the fourth prolongation of the Italian guarantee scheme to facilitate the securitization of non-performing loans.

    June 18, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7128