PRA published a statement in response to the changes announced to UK COVID-19 business interruption loan schemes by HM Treasury. The statement sets out PRA’s observations on whether the guarantees provided under the Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) are eligible for recognition as unfunded credit risk mitigation under the Capital Requirement Regulation (CRR). Additionally, BoE announced that it will continue to offer three-month and one-month term Contingent Term Repo Facility (CTRF) operations on a weekly basis through May 2020, with the final operation scheduled on May 29.
PRA considers that the terms of the guarantees provided by the Secretary of State under the schemes do not contain features that would render these guarantees ineligible for recognition as unfunded credit risk protection and the effects of these guarantees would appear to justify such treatment. In accordance with CRR, firms recognizing the CBILS guarantee as eligible unfunded protection in relation to an exposure are required to adjust the exposure amount to exclude elements not covered by the CBILS guarantee. Some of the CBILS guarantees exclude cover for interest and fees.
The government is taking additional steps on CBILS to ensure that lenders have the confidence they need to process finance applications quickly, including removing the per lender portfolio cap for the government guarantee, and changing the viability tests that so that all banks will need to assess is whether a business was viable before the COVID-19 disruption. In the current extraordinary circumstances, it will be challenging for many businesses to provide forecast financial information with a high degree of confidence to support firms’ loan underwriting processes. Given that, PRA expects lenders to use their judgment on what information is required to make credit decisions. Lenders are reminded that they should consider the range of information available to them including (but not limited to) the performance of the business prior to the COVID-19 outbreak; a view of how the loan will be repaid in due course, judgment in the absence of financial forecast information; and general prospects for the sector in which the business operates once the effects of the pandemic have receded.
The government of UK also launched a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders. The government, which has been consulting extensively with business representatives about the design of the new scheme, will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months. The loans will be easy to apply for through a short, standardized online application. The loan should reach businesses within days, providing immediate support to those that need it as easily as possible. This new scheme will run alongside the existing CBILS and CLBILS.
Keywords: Europe, UK, Banking, COVID-19, CBILS, CLBILS, Credit Risk, CRR, Regulatory Capital, HM Treasury, CTRF, Loan Guarantee, PRA, BoE
Previous ArticleFCA Consults on Various Handbook Amendments
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).
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.
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.
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.
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.