MEPs Approve Amendments to CRR to Ease Impact of COVID-19 Pandemic
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.
Related Links
Keywords: Europe, EU, Banking, COVID-19, Credit Risk, IFRS 9, Leverage Ratio, Operational Risk, Large Exposures, Non-Performing Loans, ECON, Basel, EP, European Parliament
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Dieter Van der Stock
IFRS subject matter expert; accounting authority; risk management specialist
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
GLEIF Publishes Version 1.2 of Entity Legal Forms Code ListRelated Articles
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
