European Council Adopts Position on Capital Markets Recovery Package
Ambassadors of EU member states agreed on the mandate of European Council on the Capital Markets Recovery Package, to support economic recovery from the COVID-19 crisis. The amendments in the package focus on the the securitization framework as laid down in the Securitization Regulation and the Capital Requirements Regulation (CRR), the Markets in financial instruments directive (MiFID) II, and the Prospectus Regulation. European Council lends full political support to the EC package, while suggesting changes to some of the detailed provisions.
With respect to securitizations, the proposed amendments extend the existing EU framework for simple, transparent, and standardized (STS) securitizations to synthetic securitizations. Synthetic securitizations are an important credit risk management tool for banks, as they enable banks to transfer the credit risk of a set of loans, typically large corporate loans or small and medium-size enterprise (SME) loans, to investors. In addition, regulatory obstacles to the securitization of non-performing exposures are removed to support banks in offloading non-performing exposures from their balance sheets in the context of the COVID-19 crisis, while maintaining high prudential standards.
European Council suggests complementing the EC proposals with a dedicated prudential treatment for synthetic excess spread (SES) in the CRR. SES is a credit enhancement tool and a common feature in synthetic securitization transactions; however, this tool could be misused for regulatory arbitrage. The introduction of dedicated and comprehensive regulatory capital requirements for SES addresses the risk of a potential misuse of SES for arbitrage purposes for all synthetic securitization transactions, irrespective of whether they meet the STS criteria or not. On the basis of this mandate, the presidency will start negotiations with the European Parliament as soon as the Parliament has adopted its position.
Related Links
Keywords: Europe, EU, Banking, Securities, COVID-19, CRR, Basel, Securitization, Securitization Regulation, STS Securitization, Capital Markets Union, Credit Risk, NPE, EC, European Council
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
Previous Article
MAS Extends Facility to Support Lending to SMEs Amid COVID-19 CrisisRelated 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.
