EBA published additional clarifications on issues raised on the application of prudential framework, as a consequence of the COVID-19 pandemic. The clarifications mainly cover the EBA guidelines on moratoria and COVID-19 reporting, operational risk, downturn LGD estimation, and treatment of COVID‐19 public guarantee schemes. This report is a part of the wider monitoring of the implementation of COVID-19 policies by EBA as well as of the application of existing policies under these exceptional circumstances.
The clarifications update the frequently asked questions (FAQs) section in the EBA report (previous version was dated December 21, 2020) on COVID-19 implementation policies. The update includes additional technical clarifications on the application of the guidelines on moratoria related to the recent re-activation of the EBA guidelines on payment moratoria. EBA has provided clarifications on the functioning of the nine-month cap, which limits the period of time for which payments on a certain loan can be suspended, postponed, or reduced as a result of the application (and reapplication) of general payment moratoria. These clarifications explain how to apply the guidelines on moratoria when assessing forbearance classification and how to determine whether there is a diminished financial obligation in relation to moratoria applied to loans exceeding the nine-month cap. Regarding reporting and disclosures, the updated report covers the treatment of loans and advances subject to expired moratoria; it clarifies that when a moratorium expires, the loans and advances subject to this expired measure should be reported, regardless of whether they are subject to another measure.
The report also includes considerations for criteria that institutions should adopt with regard to operational risk in the context of the pandemic. The common criteria provided in the report aim to reduce possible inconsistencies in the calculation of capital requirements and supervisory reporting for operational risk. This will allow institutions to have a clear view of supervisory and regulatory expectations, when dealing with operational risk events and losses stemming from the COVID‐19 pandemic. The report also includes clarifications on the likely identification of a COVID‐19‐triggered downturn period and its incorporation into downturn LGD estimation. Finally, the report clarifies the treatment of COVID‐19 public guarantee schemes as a form of credit risk mitigation under the advanced internal ratings-based, or A-IRB, approach. In consideration of the rapid succession of COVID‐19‐related events, the report may be updated in the future with additional clarification on the prudential treatment of COVID‐19‐related measures as well as on the implementation issues surrounding the existing policies in the context of the current pandemic.
Keywords: Europe, EU, Banking, COVID-19, Basel, Reporting, FAQ, Credit Risk, Operational Risk, Disclosures, IRB Approach, Loan Moratorium, Loan Guarantee, Regulatory Capital, EBA
Previous ArticleEBA and ECB Announce the 2021 Stress Test Exercise for Banks in EU
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.