ECB Considers Guarantee Framework for Banks Coming Out of Resolution
ECB has compared the frameworks for liquidity provision under the bank resolution framework across jurisdictions and presented lessons learned from different frameworks for liquidity provision post-resolution. In conclusion, ECB is investigating the development of a guarantee framework, in the Banking Union, to allow banks coming out of resolution with limited collateral to access Eurosystem. It is expected that such public guarantees would protect the Eurosystem against losses, foster a single market for banks in the Banking Union, reduce the bank-sovereign nexus, and make the resolution framework of the Banking Union more credible. In another development, the ECB Governing Council adopted a revised version of the agreement on emergency liquidity assistance (ELA).
The updated version of the agreement on ELA contains a technical amendment to Section 3.2(a)(i) to clarify that solvency assessments of financial institutions are performed by the prudential supervisor in accordance with the solvency definition for ELA purposes, as laid down in Section 4. ECB also specifies that the ELA agreement will be reviewed in the course of 2023. As per the ELA agreement, a credit institution is considered solvent for ELA purposes if:
- Its Common Equity Tier (CET)1, Tier 1, and Total Capital Ratio as reported under the Capital Requirements Regulation (CRR) on an individual (if applicable) and consolidated (if applicable) basis comply with the harmonized minimum regulatory capital levels (namely 4.5%, 6% or 8%, respectively); or
- There is a credible prospect of recapitalization—in case the above condition is not met, by which harmonized minimum regulatory capital levels would be restored within 24 weeks after the end of the reference quarter of the data that showed that the bank does not comply with harmonized regulatory minimum standards; in duly justified, exceptional cases, the Governing Council may decide to prolong the grace period of 24 weeks.
Related Links
Keywords: Europe, EU, Banking, ELA, CRR, Regulatory Capital, Basel, Resolution Framework, Guarantee Framework, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
