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 three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)