European Council Adopts Changes to CRR2 to Ease Impact of COVID Crisis
European Council published the final text of the regulation that implements targeted adjustments to the Capital Requirements Regulations (CRR and CRR2) to help credit institutions in managing the economic stress arising from the COVID-19 pandemic. European Council has published this final text of revised regulation prior to its publication in the Official Journal of the European Union. Earlier, on June 19, 2020, European Parliament had adopted this package of measures, which will become applicable on the day following that of their publication in the Official Journal of the European Union.
This banking package provides targeted and exceptional legislative changes to Capital Requirements Regulations to maximize the capacity of banks to lend money and support households and businesses to recover from the COVID-19 crisis. The targeted amendments in this regulation concern:
- changes to the minimum amount of capital that banks are required to hold for non-performing loans (NPLs) under the "prudential backstop". The preferential treatment of NPLs guaranteed by export credit agencies will be extended to other public-sector guarantors in the context of measures aimed at mitigating the economic impact of the COVID-19 pandemic.
- the extension by two years of transitional arrangements related to the implementation of the international accounting standard IFRS 9. This will allow banks to mitigate the potential negative impact of a likely increase in banks' provisions for expected credit losses.
- the temporary reintroduction of a prudential filter for sovereign bond exposures, which will mitigate the impact of the current volatility of financial markets on public debt.
- additional flexibility for supervisors to mitigate negative effects of the extreme market volatility observed during the COVID-19 pandemic, in particular by excluding "overshootings" that occurred in 2020 and 2021 in banks' internal models for market risks.
- targeted changes to the calculation of the leverage ratio (that is, the ratio between banks' capital and its exposures) and a delay in the introduction of the leverage ratio buffer by one year to January 2023.
- transitional arrangements for exposures to national governments and central banks denominated in a currency of another member state, to support funding options in non-euro member states mitigating the consequences of the COVID-19 pandemic.
- the earlier introduction of some capital relief measure for banks under CRR 2, most notably with respect to preferential treatment of certain loans backed by pensions or salaries and their SMEs and infrastructure loans, thus encouraging the credit flow to pensioners, employees, businesses and infrastructure investments.
Related Links
Keywords: Europe, Banking, Basel, CRR2, IFRS 9, NPLs, Sovereign Bonds, Leverage Ratio, COVID-19, European Parliament, European Council
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Previous Article
EIOPA Publishes Discussion Paper on Insurer Stress Testing FrameworkRelated Articles
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
EBA Publishes Single Rulebook Q&A Updates in November 2021
The European Banking Authority (EBA) Single Rulebook Question and Answer (Q&A) tool updates for this month include answers to 10 questions.
EC Finalizes Rules on Internal Approaches Benchmarking Exercise
The European Commission, or EC, finalized the Implementing Regulation 2021/2017 with respect to the benchmark portfolios, reporting templates, and reporting instructions for the supervisory benchmarking of internal approaches for calculating own funds requirements.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
