The Economic and Monetary Affairs Committee of the Members of the European Parliament (MEP) approved new rules to temporarily ensure favorable conditions for banks to support credit flow to companies and households and absorb losses while mitigating the severe economic consequences of the COVID-19 pandemic. The changes that were agreed on apply to the Capital Requirements Regulation (CRR) and these changes will have to be coherently applied throughout the EU. Banks are being expected to monitor the effects of the pandemic on their balance sheets, pay close attention to non-performing loans, and apply know-your-customer standards.
The adopted rule changes include the following:
- Two-year extension of the transitional arrangements for IFRS 9 and further relief measures (capital add back) to ensure that banks can further provide credit to the real economy
- Alignment of minimum coverage requirements for non-performing loans guaranteed by the public sector, with those guaranteed by official export credit agencies
- Deferred application of the leverage ratio buffer by one year to January 2023, further allowing banks to increase the amount of funds they would be able to loan
- Advanced application of a more favorable prudential treatment of loans to pensioners or employees with a permanent contract that are backed by the borrower's pension or salary
- Advanced application of both, the small and medium enterprise (SME) and infrastructure supporting factors, which allows for a more favorable prudential treatment of certain exposures to SMEs and infrastructure, ensuring credit flow to SMEs and supporting infrastructure investments
- Removal of the requirement for banks to deduct certain software assets from their capital, supporting an accelerated digitalization of the banking sector
- Liquidity measures provided by central banks in a crisis context to be effectively channeled by banks to the economy
To support funding options in non-euro member states fighting the consequences of the COVID-19 pandemic, the Economic and Monetary Affairs Committee reintroduced transitional arrangements related to preferential treatment for when government and central banks are exposed to bonds denominated in currencies of non-euro member states and prolonged transitions with respect to their treatment under the large exposure limits. Taking into account the extraordinary impact of the COVID-19 pandemic and the extreme levels of volatility in the financial markets leading to increased yields for public debt and, in turn, to unrealized losses on banks' holdings of public debt, the European Parliament agreed to introduce a temporary prudential filter to calculate losses accumulated since December 31, 2019 and to neutralize their impact.
Keywords: Europe, EU, Banking, COVID-19, Credit Risk, IFRS 9, Leverage Ratio, Operational Risk, Large Exposures, Non-Performing Loans, ECON, Basel, EP, European Parliament
Previous ArticleGLEIF Publishes Version 1.2 of Entity Legal Forms Code List
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.