January 03, 2019

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.

On December 18, 2018 co-legislators had reached a provisional agreement, which resulted in the final compromise text that has been published now. The General Secretariat is inviting the Permanent Representatives Committee to:

  • Approve the text of the proposal for the NPL Regulation, as set out in annex to the note with a view to reaching an agreement at first reading with the European Parliament
  • Give to the Permanent Representatives Committee chairman the mandate to inform the chair of the European Parliament's Economic and Monetary Affairs Committee that, should the European Parliament adopt the text of the proposal in the exact form as set out in the annex to the note, the Council would adopt the proposed regulation thus amended.

 

Related Link: Final Compromise Text on NPL Regulation on Prudential Backstops (PDF)

Keywords: Europe, EU, Banking, NPLs, NPE, Prudential Backstops, CRR, NPL Regulation, European Council

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