Featured Product

    EBA Proposes to Amend Technical Standards on Credit Risk Adjustments

    June 24, 2021

    EBA launched a consultation on amendments to the regulatory technical standards (Delegated Regulation 183/2014) on credit risk adjustments in the context of the calculation of the risk-weight of defaulted exposures under the standardized approach. The proposed amendments follow up on the EC Action Plan to tackle non-performing loans (NPLs) in the aftermath of the COVID-19 pandemic, which indicated the need to revise the treatment of defaulted exposures under the standardized approach. The consultation runs until September 24, 2021.

    As part of the Action Plan, EC requested EBA to consider the appropriate prudential treatment of the risk-weight for defaulted exposures, following the sale of a non-performing asset. It is noted that a 100% risk-weight—compared to the normal risk-weight of 150%—can be applied when provisions cover for more than 20% of an exposure. However only provisions/write-downs (credit risk adjustments) made by the institution can be accounted for, but not the write-downs accounted for in the transaction price of the exposure. The proposed amendments allow for the recognition of such write-downs accounted for in the transaction price of the exposure, which are retained by the seller, in the credit risk adjustments recognized for the determination of the risk-weight of defaulted exposures applied by the buyer under the standardized approach. This is done via the introduction of an amount (that could be seen as a “discount”) that would have to be added to the amount of specific credit risk adjustment used to determine appropriate risk-weight under Article 127(1) of the Capital Requirements Regulation (CRR or Regulation 575/2013). As a consequence, the amount used to determine the risk-weight under Article 127(1) of the CRR is designed in such a way that the purchase of an asset with a discount equal to the amount of specific credit risk adjustments that were assigned to the exposure by the seller does not change its risk-weight. However, the discount is defined in a dynamic way, to consider any future revaluations of the exposure.

    One of the proposed amendments to the existing technical standards on credit risk adjustments introduces a change to the recognition of total credit risk adjustments, which ensures that the risk- weight can remain the same in both cases. The price discount stemming from the sale will be recognized as a credit risk adjustment for determining the risk-weight. By implementing this change through an amendment to the technical standards, EBA aims to clarify the regulatory treatment of sold NPL assets. However, EBA also recommends that the treatment set out in the technical standards be included in the EC considerations as part of the revised Capital Requirements Regulation (CRR3) proposal, which is expected at a later stage. After the consultation period, the final draft regulatory technical standards will be subsequently submitted to EC for endorsement before being published in the Official Journal of the European Union.

     

    Related Links

    Comment Due Date: September 24, 2021

    Keywords: Europe, EU, Banking, Credit Risk Adjustments, Credit Risk, Standardized Approach, NPLs, CRR, Basel, CRR3, Regulatory Technical Standards, Regulatory Capital, Investment Firms, EBA

    Featured Experts
    Related Articles
    News

    BIS Paper Studies Impact of Fintech Lending on Small Businesses in US

    The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.

    September 26, 2022 WebPage Regulatory News
    News

    UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks

    The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).

    September 26, 2022 WebPage Regulatory News
    News

    EBA Launches EU-Wide Transparency Exercise in 2022

    The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.

    September 23, 2022 WebPage Regulatory News
    News

    SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks

    The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."

    September 22, 2022 WebPage Regulatory News
    News

    EC Rule Lists Advanced Economies for Market Risk Capital Calculations

    The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.

    September 21, 2022 WebPage Regulatory News
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8521