General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
October 31, 2018

EU ambassadors approved the position of the European Council on capital requirements applying to banks with non-performing loans (NPLs) on their balance sheets. Negotiations with the European Parliament can proceed as soon as the Parliament has agreed its stance. The new rules will apply only to loans allocated after the date of entry into force of the regulation.

The proposal, which was initially put forward by EC in March 2018, aims to create a prudential framework for banks to deal with the new NPLs and thus to reduce the risk of NPL accumulation in the future. It specifies requirements to set aside sufficient own resources when new loans become non-performing and creates appropriate incentives to address NPLs at an early stage. On the basis of a common definition of non-performing exposures, the proposed new rules introduce a prudential backstop—that is, common minimum loss coverage for the amount of money banks need to set aside to cover losses caused by future loans that turn non-performing. In case a bank does not meet the applicable minimum level, deductions from banks' own funds would apply.

According to the position of the European Council, different coverage requirements would apply, depending on the classifications of the NPLs as unsecured or secured and whether the collateral is movable or immovable:

  • Regarding NPLs secured by immovable collateral (commercial or residential real estate), it can be reasonably assumed that immovable property will have a remaining value for a longer period of time after the loan turned non-performing. Thus, the proposal provides a gradual increase of the minimum loss coverage level over a period of nine years. The full coverage of 100% for NPLs secured by movable and other Capital Requirements Regulations (CRR) eligible collateral will have to be built up after seven years.
  • Unsecured NPLs require higher and timelier minimum loss coverage because they are not backed by collateral. Therefore, the maximum coverage requirement would apply fully after three years.

 

Related Links

Keywords: Europe, EU, Banking, NPLs, Capital Requirements, CRR, European Parliament, Non performing Exposures, EC, European Council

Related Insights
News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News
News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News
News

PRA Publishes PS4/19 on Loss-Absorbency Mechanism Under Solvency II

PRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II.

February 20, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News
News

BIS Paper on Effect of Securities Lending on OTC Market Liquidity

BIS published a working paper that studies how securities lending affects over-the-counter market (OTC) liquidity.

February 19, 2019 WebPage Regulatory News
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News
News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2621