EC adopted a banking package to help facilitate bank lending to households and businesses in EU, amid the COVID-19 pandemic. The banking package includes an Interpretative Communication on the accounting and prudential frameworks in EU as well as a proposal to amend the Capital Requirements Regulations, CRR and CRR2 (EU 575/2013 and 2019/876). The proposal implements certain targeted changes to maximize the capacity of credit institutions to lend and to absorb losses related to the COVID-19 pandemic. EC also published remarks by the Executive Vice-President Valdis Dombrovskis and a set of frequently asked questions (FAQs) on the banking package.
Proposal to Amend CRR and CRR2
As part of the targeted amendments to CRR and CRR2, EC proposed exceptional temporary measures to alleviate the immediate impact of COVID-19-related developments, including the following:
- Transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital—The proposal includes adjusting the transitional arrangements that allow credit institutions to alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own funds. This adjustment would allow credit institutions to better mitigate the impact of any potential increase in ECL provisioning caused by the deterioration in the credit quality of credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic.
- Treatment of publicly guaranteed loans under the nonperforming loan (NPL) prudential backstop—NPLs guaranteed by official export credit agencies receive a preferential treatment regarding provisioning requirements under Article 47c of the CRR. The proposed derogation from Article 47c(3) extends this preferential treatment to exposures guaranteed or counter-guaranteed by the public sector in the context of measures aimed at mitigating the economic impact of the COVID-19 pandemic, subject to Union State aid rules, where applicable.
- Date of application of the leverage ratio buffer—In the context of the COVID-19 pandemic and in line with the revised implementation timeline agreed by BCBS, the application date of the new leverage ratio buffer requirement, set in Article 3(5) of CRR2, has been deferred by one year, to January 01, 2023.
- Offsetting the impact of excluding certain exposures from the calculation of the leverage ratio—The offsetting mechanism associated with the competent authority discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio has been modified. This would ensure that liquidity measures provided by central banks in a crisis context would be effectively channeled by credit institutions to the economy.
EC also proposed to advance the date of application of several agreed measures that incentivize banks to finance employees, small and medium-sized enterprises (SMEs), and infrastructure projects. The proposed changes will not fundamentally alter the prudential regulatory framework. They form a part of the response of EC to address the emergency situation triggered by the COVID-19 pandemic.
The Interpretative Communication confirms the recent statements on using flexibility within accounting and prudential rules, such as those made by BCBS, EBA, and ECB. Within this communication, EC encourages banks and supervisory authorities to make use of flexibility in the accounting and prudential frameworks in EU. For instance, the communication confirms, and welcomes, the flexibility available in EU rules when it comes to public and private moratoria on loan repayments (EBA guidelines of April 02). The communication also highlights areas in which banks are invited to act responsibly, for example, by refraining from making dividend distributions to shareholders or adopting a conservative approach to the payment of variable remuneration. Going forward, EC will further engage with the European financial sector on its role in the fight against the COVID-19 and its socioeconomic impact and the support of a sustainable economic recovery.
- Press Release
- Proposal to Amend CRR and CRR2 (PDF)
- Interpretative Communication (PDF)
- Remarks by Valdis Dombrovskis
Keywords: Europe, EU, Banking, COVID-19, CRR, Basel III, Leverage Ratio, SME, FAQ, IFRS 9, ECL, Non-Performing Loans, ECL, EBA, ECB, EC
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous ArticleBIS Studies Financial Resilience of Households Amid COVID Crisis
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.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.