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

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196