European Council Publishes Final Compromise Text for NPL Regulation

European Council published final compromise text on the proposal for a regulation amending the Capital Requirements Regulation or CRR (Regulation 575/2013) regarding the minimum loss coverage for non-performing exposures (NPL Regulation). The proposal, initially put forward by EC in March 2018, aims to create a prudential framework for banks to deal with new nonperforming loans (NPLs) and thus reduce the risk of their accumulation in the future. It provides for requirements to set aside sufficient own resources when new loans become non-performing and creates appropriate incentives to address NPLs at an early stage. On the basis of a common definition of NPLs, the proposed new rules introduce a "prudential backstop"—that is, common minimum loss coverage for the amount of money banks need to set aside to cover losses caused by future loans that turn non-performing. In case a bank does not meet the applicable minimum level, deductions from banks' own funds would apply.