BCBS announced additional measures to alleviate the impact of COVID-19 on the global banking system. Key measures among these involve the postponement of the margin requirements for non-centrally cleared derivatives and of the implementation of the revised G-SIB framework by one year. The recently announced measures complement the previous measures published by the Group of Central Bank Governors and Heads of Supervision, which is the oversight body of the Basel Committee.
An overview of the recently announced measures follows:
- Risk-based treatment of extraordinary support measures related to COVID-19. Governments in many jurisdictions have introduced extraordinary support measures to alleviate the financial and economic impact of COVID-19, including a range of government guarantee programs for bank loans. In addition, governments, and in some cases, banks, have introduced payment moratoria. These measures aim to ensure that banks can continue to lend to households and businesses and to mitigate the adverse effects of COVID-19 on the economy. The Committee published technical guidance to ensure that banks reflect the risk-reducing effect of these measures when calculating their regulatory capital requirements.
- Expected credit loss accounting. The Committee has been actively engaged in discussions with international accounting and auditing standard-setting boards, audit firms, and market regulators regarding the impact of COVID-19 on such frameworks. The Committee notes that banks should use the flexibility inherent in expected credit loss (ECL) accounting frameworks to take account of the mitigating effect of the extraordinary support measures related to COVID-19. In addition, the Committee has agreed to amend its transitional arrangements for the regulatory capital treatment of ECL accounting. The adjustments will provide jurisdictions with greater flexibility in deciding whether and how to phase in the impact of expected credit losses on regulatory capital. Irrespective of when a jurisdiction initially started to apply transitional arrangements, for the two-year period comprising the years 2020 and 2021, jurisdictions may allow banks to add-back up to 100% of the transitional adjustment amount to common equity tier 1 capital. The “add-back” amount must then be phased-out on a straight line basis over the subsequent three years.
- Margin requirements for non-centrally cleared derivatives. The Committee, along with IOSCO, has agreed to defer the final two implementation phases of the framework for margin requirements for non-centrally cleared derivatives by one year. The final implementation phase will take place on September 01, 2022, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than EUR 8 billion will be subject to the requirements. As an intermediate step, from September 01, 2021 covered entities with an AANA of non-centrally cleared derivatives greater than EUR 50 billion will be subject to the requirements.
- Global systemically important banks annual assessment. The Committee will conduct the 2020 global systemically important bank (G-SIB) assessment exercise as planned, based on end-2019 data; however, it has agreed not to collect the memorandum data included in the data collection template. The Committee has also decided to postpone the implementation of the revised G-SIB framework by one year, from 2021 to 2022.
The Committee will continue to monitor the banking and supervisory implications of COVID-19 and actively coordinate its response with FSB and other standard-setting bodies. Banks and supervisors must remain vigilant in light of the rapidly evolving nature of COVID-19 to ensure that the global banking system remains financially and operationally resilient. The Committee also reiterates its view that capital resources should be used by banks to support the real economy and absorb losses.
- Press Release
- Technical Guidance
- Delay in Margin Requirements
- Revised Margin Requirements (PDF)
- Previous Measures, March 27, 2020
- Revised G-SIB Framework
Keywords: International, Banking, Accounting, Basel III, G-SIB Framework, Data Collection, Margin Requirements, ECL, CECL, IFRS 9, COVID-19, Implementation Timeline, BCBS
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