Featured Product

    PRA Clarifies Regulatory Treatment of COVID-19 Loan Scheme Under CRR

    May 04, 2020

    BoE announced changes to the Term Funding Scheme with additional incentives for SMEs (TFSME) to support the Bounce Back Loan Scheme of HM Treasury. Along with this announcement, PRA confirmed that banks subject to the UK leverage ratio will be able to exclude loans under the Bounce Back Loan scheme from the UK leverage ratio exposure measure. Later, PRA also published a statement on credit risk mitigation eligibility and leverage ratio treatment of loans under the Bounce Back Loan Scheme.

    HM Treasury recently launched the COVID-19 Bounce Back Loan scheme or BBLS. In its statement, PRA has set out observations on the risk-weighted treatment of exposures under this scheme, particularly eligibility for recognition as unfunded credit risk mitigation under the Capital Requirements Regulation (CRR) and a related change to the UK leverage ratio framework. PRA encourages firms to review relevant articles of the CRR and any relevant PRA rules and guidance, including expectations set out in the PRA Supervisory Statement SS17/13 titled "Credit risk mitigation." A guarantee is one form of unfunded credit protection which, where it meets the conditions in Articles 194 and 213-215 CRR, may allow a firm to adjust risk-weights and expected loss amounts. The Bounce Back Loan Scheme guarantee has been provided by the Secretary of State in the context of the COVID-19 pandemic. PRA considers that the terms of the guarantee provided by the Secretary of State under the scheme do not contain features that would render these guarantees ineligible for recognition as unfunded credit risk protection and the effects of these guarantees would appear to justify such treatment.

    PRA is offering a modification by consent for banks subject to the UK Leverage Ratio Part of the PRA Rulebook to exclude loans under this scheme from the leverage ratio total exposure measure, if they choose to do so. It also permits firms to exclude loans made pursuant to schemes of a similar character which are 100% guaranteed by a government or central bank of an European Economic Area state or the ECB, provided that such loans do not exceed EUR 60,000 per loan. PRA will consider further modifications for substantively similar European Economic Area schemes that do not meet these criteria on a case-by-case basis. PRA also published a Direction for modification by consent of the exclusion of loans under the Bounce Back Loan Scheme. The Direction addresses modifications to leverage ratio reporting and public disclosure rules that provide that the quarterly average figures, to be disclosed or reported for the quarter in which the modification first applied, shall reflect the modification as if it had applied on each day of the quarter.

    The TFSME, which was modified to support the Bounce Back Loan Scheme, allows eligible banks and building societies to access four-year funding at rates very close to Bank Rate. The scheme is designed to incentivize eligible participants to provide credit to businesses and households to bridge through the period of economic disruption caused by the outbreak of COVID-19. The scheme includes additional incentives to provide credit to small and medium enterprises or SMEs.

     

    Related Links

    Keywords: Europe, UK, Banking, Loan Guarantee, Leverage Ratio, CRR, Regulatory Capital, Credit Risk, BBLS, COVID-19, HM Treasury, PRA, BoE

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    EBA Updates Lists of Entities for Use in Capital Calculations under SA

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6826