European Council published the final text of the regulation that implements targeted adjustments to the Capital Requirements Regulations (CRR and CRR2) to help credit institutions in managing the economic stress arising from the COVID-19 pandemic. European Council has published this final text of revised regulation prior to its publication in the Official Journal of the European Union. Earlier, on June 19, 2020, European Parliament had adopted this package of measures, which will become applicable on the day following that of their publication in the Official Journal of the European Union.
This banking package provides targeted and exceptional legislative changes to Capital Requirements Regulations to maximize the capacity of banks to lend money and support households and businesses to recover from the COVID-19 crisis. The targeted amendments in this regulation concern:
- changes to the minimum amount of capital that banks are required to hold for non-performing loans (NPLs) under the "prudential backstop". The preferential treatment of NPLs guaranteed by export credit agencies will be extended to other public-sector guarantors in the context of measures aimed at mitigating the economic impact of the COVID-19 pandemic.
- the extension by two years of transitional arrangements related to the implementation of the international accounting standard IFRS 9. This will allow banks to mitigate the potential negative impact of a likely increase in banks' provisions for expected credit losses.
- the temporary reintroduction of a prudential filter for sovereign bond exposures, which will mitigate the impact of the current volatility of financial markets on public debt.
- additional flexibility for supervisors to mitigate negative effects of the extreme market volatility observed during the COVID-19 pandemic, in particular by excluding "overshootings" that occurred in 2020 and 2021 in banks' internal models for market risks.
- targeted changes to the calculation of the leverage ratio (that is, the ratio between banks' capital and its exposures) and a delay in the introduction of the leverage ratio buffer by one year to January 2023.
- transitional arrangements for exposures to national governments and central banks denominated in a currency of another member state, to support funding options in non-euro member states mitigating the consequences of the COVID-19 pandemic.
- the earlier introduction of some capital relief measure for banks under CRR 2, most notably with respect to preferential treatment of certain loans backed by pensions or salaries and their SMEs and infrastructure loans, thus encouraging the credit flow to pensioners, employees, businesses and infrastructure investments.
Keywords: Europe, Banking, Basel, CRR2, IFRS 9, NPLs, Sovereign Bonds, Leverage Ratio, COVID-19, European Parliament, European Council
Previous ArticleEIOPA Publishes Discussion Paper on Insurer Stress Testing Framework
The European Banking Authority (EBA) published the final draft implementing technical standards on Pillar 3 disclosures on environmental, social, and governance (ESG) risks.
The European Banking Authority (EBA) proposed to update the guidelines on the data collection exercise on high earners and the remuneration benchmarking exercise under the Capital Requirements Directive (CRD).
The Network for Greening the Financial System (NGFS) announced the appointment of Mr. Ravi Menon, the Managing Director of the Monetary Authority of Singapore (MAS), as its new Chair for a two-year term.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules on related-party transactions and outsourcing risks.
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The Bank of International Settlements (BIS) announced successful test integration of wholesale central bank digital currency (CBDC) settlement with commercial banks, as part of the Project Helvetia.
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.