Featured Product

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    May 20, 2020

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic. The opinion was issued in response to a request from the European Council and the European Parliament to provide an opinion on the proposed regulation amending the Capital Requirements Regulations (CRR and CRR2) with regard to adjustments in response to the COVID-19 pandemic. In its opinion, ECB welcomes the targeted adjustments to CRR, as they further increase the capacity of the banking system to mitigate the economic impact of the pandemic and support recovery, while preserving the key elements of the prudential framework.

    Some elements of the proposed regulation are complementary to the mitigating supervisory measures taken by ECB while certain other measures recently agreed to by BCBS require amendments to the EU legal framework to become operational. In its opinion, ECB sets out certain specific observations on the following topics:

    • Transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital. Article 473a of CRR contains transitional arrangements allowing institutions to add back to their common equity tier 1 (CET1) capital a portion of any increase in provisions due to the introduction of expected credit losses (ECL) accounting under IFRS 9. ECB supports the amendment of Article 473a of CRR to allow credit institutions to add back to their CET1 capital an amount limited to the increase attributable to the dynamic component of the ECL provisions after December 31, 2019. This solution would allow to tailor the scope of additional measures to address the effects related to COVID-19 crisis, distinguishing them from the day-one impact that the increase in provisions had on CET1 capital due to the introduction of IFRS 9. 
    • Treatment of publicly guaranteed loans under the non-performing exposure (NPE) prudential backstop. ECB welcomes proposal to temporarily extend the more beneficial treatment of Article 47c(4) of CRR to NPEs guaranteed by the national governments or other public entities. The proposal removes an arbitrary distinction between guarantees given by different public entities with a similar credit standing.
    • Date of application of the leverage ratio buffer. On March 27, 2020, BCBS issued a statement on postponement of the timeline for implementing the final elements of the Basel III reform by one year, including the leverage ratio buffer for global systemically important banks, which will become applicable in EU on January 01, 2022. The proposed regulation envisages an alignment of the applicable timeline in CRR with the new timeline that is January 01, 2023 (rather than January 01, 2022). ECB supports the decision to make use of the extended timeline agreed at the international level, for the finalization of Basel III reforms for the purpose of their transposition into EU law.
    • Offsetting the impact of excluding certain exposures from the leverage ratio calculation. ECB welcomes that the proposed regulation implements a targeted exclusion of an increase in central bank reserves, which can support a smooth implementation and transmission of monetary policy measures. For the exclusion to be fully effective, ECB suggests certain modifications. Competent authorities should, therefore, be able to set the reference date for recalibration so that the recalibration remains stable for the period of the exceptional circumstances. In addition, the competent authorities should be able to recalibrate on the basis of a reference period, rather than a reference date. The average amount of eligible central bank reserves over the period would then be taken into account in the recalibration. 
    • Possible further changes to certain aspects of market risk requirements. BCBS standard on market risk internal models contains sufficient flexibility for competent authorities with regard to the treatment of back-testing overshootings in extraordinary circumstances. While CRR does not contain an explicit reference to the extraordinary circumstances described in the BCBS text, some flexibility for the competent authority in assessing the results of the backtesting is allowed. However, the opinion highlights that CRR should be amended to ensure that, in extraordinary circumstances, competent authorities can take appropriate action, in line with the BCBS standard. For this purpose, the competent authorities should be given further flexibility to allow them to temporarily adjust the number of overshootings (resulting from both actual and hypothetical losses) or take other appropriate action. It would also be important that the competent authority should exercise this power across all supervised entities with regard to their respective internal models, rather than on an individual basis. 

     

    Related Link: Opinion (PDF)

    Keywords: Europe, EU, Banking, COVID-19, Opinion, CRR, Regulatory Capital, Basel, Credit Risk, Market Risk, NPE, Leverage Ratio, Implementation Timeline, ECL, IFRS 9, BCBS, ECB

    Featured Experts
    Related Articles
    News

    PRA Proposes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    PRA proposed rules (in CP12/21) for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies that have been approved or designated in accordance with Part 12B of the Financial Services and Markets Act 2000 (FSMA).

    June 21, 2021 WebPage Regulatory News
    News

    ECB Extends Leverage Ratio Relief for Banks Until March 2022

    ECB Banking Supervision announced that euro area banks it directly supervises may continue to exclude certain central bank exposures from the leverage ratio until March 2022.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Treatment of Credit Valuation Adjustments

    OSFI decided to increase the Domestic Stability Buffer from 1.00% to 2.50% of total risk-weighted assets, with effect from October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    HKMA Requires Banks to Submit Plans for Fintech Adoption

    HKMA is requesting banks to participate in a tech baseline assessment, which forms part of the HKMA Fintech 2025 strategy.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Operational Risk Capital Data Management Expectations

    OSFI published two documents to consult on the management of operational risk capital data for institutions required, or for those applying, to use the Basel III standardized approach for operational risk capital in Canada.

    June 18, 2021 WebPage Regulatory News
    News

    NGFS on Addressing Financial Stability Issues from Biodiversity Loss

    The NGFS Study Group on Biodiversity and Financial Stability published a Vision paper exploring the case for action in addressing the financial stability concerns arising from biodiversity loss.

    June 18, 2021 WebPage Regulatory News
    News

    ACPR Publishes CREDITIMMO Version 2.3.0 Taxonomy for Banks

    ACPR published the final version of CREDITIMMO 2.3.0 taxonomy for the decree of October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    EC Prolongs Italian Guarantee Scheme for Non-Performing Loans

    EC, has approved, under the EU State Aid rules, the fourth prolongation of the Italian guarantee scheme to facilitate the securitization of non-performing loans.

    June 18, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7128