EBA is making participation in the Basel III monitoring exercise mandatory for banks, from December 2021. The change from voluntary participation to mandatory stems from the need to expand the sample to more jurisdictions and credit institutions, making it more representative; another aim is to reach a stable sample over time by providing authorities with a sound legal basis that frames participation of institutions. The decision also modifies the semiannual character of the voluntary exercise by requesting information on an annual basis. Annex 1 to the decision identifies the parts of the current structure of the Basel monitoring templates that banks participating in the mandatory Basel monitoring exercise should complete. This decision enters into force immediately.
When determining the sample, the decision avoids any unnecessary extension of reporting obligations to credit institutions that have not previously participated in the exercise while ensuring that enough information on the various types of credit institutions by size and business models is made available to EBA. The decision introduces a clear, transparent, and fair methodology on how institutions should be included in the sample and guarantees enhanced stability of the sample over time by taking into account the proportionality principle. The decision applies clear selection criteria for defining the country samples. Each member state should apply, sequentially, the following criteria:
- All global and other systemically important institutions (G-SIIs and O-SIIs) are included in the country sample at the highest level of EU consolidation, irrespective of their size.
- If 80% risk-weighted asset coverage is not exceeded and the sample is smaller than 30 banks, additional large banks (Tier 1 capital > EUR 3 billion or Total Assets > EUR 30 million), other than O-SIIs, are to be included until 80% risk-weighted asset coverage is exceeded.
- If 80% risk-weighted asset coverage is not exceeded, additional medium-size and small banks (that are not O-SIIs) are to be selected from the eligible population of three different broad business models, according to predefined percentages per business model. For this purpose, EBA defines the eligible population as the population of credit institutions per business model after excluding those whose individual risk-weighted asset is below 0.1% of the member state’s total risk-weighted asset. Broad business models are those of credit institutions that provide universal services, retail-oriented services, and corporate-oriented and other services. Additionally, the predefined percentages per business model are 20% of the number of institutions that provide universal services, 2% of those providing retail-oriented services, and 20% of those providing corporate-oriented and other services.
Additionally, the decision intends to limit the burden on small jurisdictions, as a whole (member state’s risk-weighted asset < 0.5% of the total EU risk-weighted asset), by limiting the participation to O-SIIs only, irrespective of whether the 80% risk-weighted asset coverage is exceeded or not. The participating credit institutions shall submit to the competent authorities the Basel data annually, by the first Friday of April, while the competent authorities shall submit to EBA the Basel data annually, by the third Friday of April. EBA may conduct additional quality checks of the data received and may require revisions from the competent authorities. Competent authorities that have, or can, acquire access to the Basel data for credit institutions under their supervisory remit shall make the submission by September 30, 2021. Competent authorities that do not have, and cannot acquire, access to the Basel data for credit institutions under their supervisory remit shall notify EBA of this lack of access and make the submission by March 31, 2021. Overall, this decision will assist EBA to represent, effectively, the interests of EU institutions in BCBS and to provide informed opinions and technical advice to EC, European Parliament, and European Council regarding the implementation of the BCBS standards into EU law.
Effective Date: March 16, 2021
Keywords: Europe, EU, Banking, Basel III Monitoring, Basel, Regulatory Capital, G-SII, O-SII, CRR, Proportionality, Reporting, BCBS, EBA
Previous ArticleESAs Consult on Taxonomy-Related Sustainability Disclosures
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)