ECB Guideline on Materiality Threshold for Credit Obligations Past Due
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions. The guideline specifies how national supervisors shall exercise—in relation to the less significant institutions—their discretion with regard to the threshold for assessing the materiality of credit obligations past due, irrespective of the method used for the calculation of the risk-weighted exposure amounts. The guideline shall take effect on the day of its notification to national competent authorities of the participating member states. The national competent authorities shall comply with this guideline no later than December 31, 2020. In addition, a corrigendum to the ECB Regulation 2018/1845, on threshold for assessing the materiality of credit obligations past due, has been published in the Official Journal of European Union.
For the purpose of Article 178(2)(d) of the Capital Requirements Regulation (CRR or 575/2013), national competent authorities shall require less significant institutions to assess the materiality of a credit obligation past due against the threshold, that comprises two components:
- A limit in terms of the sum of all amounts past due owed by the obligor to the credit institution, the parent undertaking of that credit institution or any of its subsidiaries, equal to EUR 100 for retail exposures and EUR 500 for exposures other than retail exposures.
- A limit in terms of the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking or any of its subsidiaries, excluding equity exposures, equal to 1%.
A default shall be deemed to have occurred when both the limits, mentioned above, have been exceeded for more than 90 consecutive days. The new guideline for less significant banks is aligned with the threshold defined in the ECB Regulation 2018/1845 for significant banks. The alignment of the materiality threshold for credit obligations past due for all banks, regardless of whether they are supervised directly by ECB or by national supervisors, contributes to the consistent application of supervisory standards to both significant and less significant credit institutions. The national competent authorities shall ensure that less significant institutions apply such threshold no later than December 31, 2020. The national competent authorities shall also ensure that less significant institutions notify them of the exact date on which they will commence applying the threshold for the assessment of the materiality of a credit obligation past due.
ECB had published, in January 2020, the draft guideline on definition of materiality threshold for credit obligations past due for less significant institutions. The consultation period on the draft guideline had ended in February 2020.
Related Links
- Press Release
- ECB Guidelines 2020/978
- Consultation on Draft Guideline
- Corrigendum to Regulation 2018/1845
Keywords: Europe, EU, Banking, CRR, Credit Risk, Materiality Threshold, Credit Obligations, Less Significant Institutions, Regulation 2018/1845, Guideline 2020/97, ECB
Previous Article
IFSB Outlines Measures to Ease Impact of COVID for Islamic BanksRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards