EBA published a report on the implementation of selected COVID-19 policies within the prudential framework for banking sector. The report aims to provide a follow-up on the implementation issues surrounding COVID-19 credit risk policy relief measures, specifically the guidelines on loan moratoria. The report also includes considerations on the COVID-19 issues that can arise during the application of operational risk framework. Accompanying this report is a summary overview of the general payment moratoria in place in different national jurisdictions in EU. By July 02, 2020, EBA has received notifications and responses from 28 member states, with information on the different moratoria schemes that have been introduced in each jurisdiction. Two of these member states have declared that no moratorium is in place. For all of these notifying member states, it is the supervisory authority and/or the national bank that provided notification of these moratoria.
The implementation report, at the current stage, includes questions and answers brought to the attention of the supervisory community on the guidelines on moratoria, which have been developed under extremely tight deadlines. The report provides clarification on three key aspects of the guidelines on moratoria. The first key aspect further clarifies the condition that the moratorium has to be broadly applied, to ensure that the moratoria are similar in economic substance, regardless of whether they are legislative or nonlegislative. Second, this report provides further details about the condition that a moratorium should change only the schedule of payments and that the moratorium should not affect other conditions of the loan. The third key aspect concerns the selection criteria in the moratorium, which determine the conditions under which obligors are allowed to benefit from the moratorium; these are usually related to the extent to which the obligor is affected by the COVID-19 pandemic. However, further clarification seems needed on how this interacts with such criteria allowing any assessment of the obligor’s creditworthiness. In addition to these broader issues, other detailed questions cover topics pertaining to, for instance, cross-border issues, the general scope of the guidelines, the date of application, how to treat the renewal of loans, bullet loans or seasonal loans, and the counting of days past due.
This report specifies the criteria that institutions should follow for the identification and treatment of operational risk events and losses through the provision of a dedicated risk classification schema. The risk classification schema is presented as an analysis of the five main types of impact that can be identified as relating to the COVID-19 situation and that should be considered from an operational risk perspective:
- Impact of COVID-19 on institutions’ business continuity
- Impact of COVID-19 on institutions’ ordinary course of business
- Impact of COVID-19 on loss events
- Impact of COVID-19 on credit risk and potential consequences on operational risk
- Impact of implementing novel legislation in response to COVID-19 pandemic
The common criteria provided in the report aim to reduce possible inconsistencies in the calculation of capital requirement calculations related to operational risk. This will allow institutions to have a clear view of supervisory and regulatory expectations, when dealing with operational risk losses. For each type of impact, clarifications are provided on whether and how these events should be treated as operational risk losses to be considered under the Advanced Measurement Approach and Basel III Standardized Approach and which ones should not be included in those calculations but should still be recorded for managerial purposes. The report also encourages credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements. As a significant number of policy issues have arisen and will continue to arise in the context of the EBA monitoring of the implementation of COVID-19 policies, EBA expects to update this report at a later stage.
- Press Release
- Report (PDF)
- National Notifications on Payment Moratoria (XLSX)
- Guidelines on Moratoria, April 2020
Keywords: Europe, EU, Banking, COVID-19, Loan Moratorium, Operational Risk, Regulatory Capital, Credit Risk, Basel, EBA
Previous ArticleCMF Publishes Rules on Management of Information and Cyber Security
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.