EC welcomed the agreement between the European Parliament and European Council on targeted changes to the securitization framework and the Capital Requirements Regulation (CRR) in EU. These changes will apply immediately after their publication in the Official Journal of the European Union. The European Parliament and Council also agreed to solve an issue arising from a six-month time gap between the transposition deadlines of the Investment Firms Directive (IFD) and the investment firm rules contained in the Capital Requirements Directive (CRD5). Both these developments are part of the EU initiatives for making capital markets work for European recovery in response to the ongoing COVID-19 crisis.
The amendments to securitization requirements create a specific framework for simple, transparent, and standardized on-balance sheet securitization that would benefit from prudential treatment reflecting the real risk of these instruments. In addition, these changes remove regulatory obstacles to securitizing non-performing exposures. These targeted changes were part of the capital markets stimulus package presented by EC in July 2020 and they encourage a wider use of securitization in the European recovery to free up bank capital and allow banks to continue lending, especially households and small and medium-size enterprises (SME). These amendments would be useful to allow banks to transfer certain risks to the markets so that they can continue to lend. The changes can also help banks deal with a possible increase in the non-performing exposures due to COVID crisis.
Keywords: Europe, EU, Banking, Securities, Securitization, CRR, STS Securitization, COVID-19, Basel, IFD, Investment Firms, CRD, Regulatory Capital, EC
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