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    German Regulators Issue Multiple Updates for Financial Sector Entities

    The Deutsche Bundesbank has published its first climate-related report while the Federal Financial Supervisory Authority of Germany (BaFin) published circulars on additional liquidity outflows and on stable funding requirements. BaFin also welcomed the agreement reached on the Corporate Sustainability Reporting Directive (CSRD) as well as on proposals for regulations on markets in crypto assets (MiCA) and digital operational resilience (Digital Operational Resilience Act or DORA) in the European Union.

    Below are key highlights of the recent updates:

    • BaFin published a circular on additional liquidity outflows in connection with products and services in accordance with Article 23 of Delegated Regulation (EU) 2015/61 on liquidity coverage requirement. The circular specifies the prudential procedure for the application of Article 23 of Regulation (EU) 2015/61 and the corresponding provisions in Implementing Regulation (EU) No 2021/451 which is related to technical standards on reporting of liquidity coverage requirement. Among other things, the categories of products and services are specified and their liquidity outflows determined. In addition, the circular specifies the annual reporting requirement for the products and services for which the probability and the potential extent of liquidity outflows are significant. The circular comes into force upon publication.
    • BaFin published a circular to facilitate determination of the required stable funding factors to be applied to off-balance-sheet exposures in accordance with Articles 428p (10) and 428aq (10) of the Capital Requirements Regulation (CRR). These CRR articles set out provisions for calculation of the required stable funding. The circular is intended to apply to institutions to which Article 6 (4) of the CRR applies and which are classified as less significant institutions (LSIs) in accordance with Article 6 (4) of the Single Supervisory Mechanism Regulation. It also applies to all institutions that are treated as CRR credit institutions in accordance with section 1a of the German Banking Act.
    • The Bundesbank report on climate risk disclosures outlines how Bundesbank incorporates climate-related risks into individual areas of activity within its mandate. The report is structured around the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). With this report, Bundesbank is disclosing the climate impact of its euro-denominated portfolio (euro portfolio), which does not serve monetary policy purposes. This portfolio is used for the investment of certain equity positions, reserves, and provisions. At a market value of EUR 10.4 billion (as at December 31, 2021), this portfolio is invested exclusively in covered bonds. Greenhouse gas emissions and other climate-related metrics were calculated as part of the analysis of this euro portfolio. However, the metrics for greenhouse gas emissions only incorporate the emissions caused by the covered bond issuers. The greenhouse gas emissions financed by the covered bonds are not included because data are currently lacking on these emissions. As the data situation improves and allows the financed greenhouse gas emissions to be accounted for, the resulting climate-related metrics calculated for the euro portfolio are likely to be significantly higher.

     

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    Keywords: Europe, Germany, Banking, Climate Change Risk, ESG, Disclosures, TCFD, Covered Bonds, Green Finance, Additional Liquidity Outflows, LCR, Liquidity Risk, CRR, Basel, NSFR, Reporting, MiCA, DORA, CSRD, Bundesbank, BaFin

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