EBA Consults on Guidelines to Assess Breaches of Large Exposure Limits
EBA proposed the guidelines that set out criteria to assess the breaches of large exposure limits specified under the Capital Requirements Regulation (CRR). The guidelines contain criteria to determine the exceptional cases, information to be provided to the competent authority in case of a breach of the large exposure limits, criteria to determine the appropriate time to return to compliance with the limits, and measures to be taken to ensure the timely return to compliance of the institution with the limits. The comment period on the proposed guidelines ends on May 17, 2021 and the guidelines are expected to apply from March 01, 2022.
The proposed guidelines clarify that any breach of the large exposure limits of Article 395(1) of CRR should always be considered as an exceptional case. The guidelines specify that competent authorities should consider whether the breach was a rare event, whether the institution could foresee the event when it had applied a proper and effective risk management, and whether it was caused by reasons beyond the control of an institution. If the breach does not fulfil these criteria, the competent authority should not grant the institution more than three months to restore compliance with the large exposure limit. The guidelines include a number of criteria that should help a competent authority make a decision regarding the time given to restore compliance:
- Institution’s record of breaches and its promptness in notifying the breach or the remedial actions to return to compliance
- Reasons, complexity, and magnitude of the breach
- Overall financial situation of the institution and the overall risk concentration in the banking book
- Type of counterparty and its creditworthiness
- Measures already taken to address the breach
The proposed guidelines specify that, when an institution is granted more than three months to comply with the limits, it should present a compliance plan to the competent authority with a number of measures as listed in the guidelines. As a general rule, the compliance plan should include arrangements to reduce the exposure, measures to increase the institution’s own funds, arrangements to reinforce internal risk management and control processes, procedures to ensure the timely implementation of the measures, and a detailed timetable to implement the planned measures. The proposal provides guidance from a going-concern perspective. Gone-concern situations in which an institution is in the process of restructuring or undergoes a similar crisis-induced scenario are consequently outside the scope of these guidelines. In such situations, measures are needed that go well beyond restoring compliance with the large exposures framework of the CRR.
Related Links
Comment Due Date: May 17, 2021
Keywords: Europe, EU, Banking, Large Exposures, CRR, Basel, Competent Authorities, Concentration Risk, Credit Risk, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
Swedish Government Proposes Changes to Crisis Management RulesRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
