Featured Product

    EBA Proposes to Amend Technical Standards on Credit Risk Adjustments

    June 24, 2021

    EBA launched a consultation on amendments to the regulatory technical standards (Delegated Regulation 183/2014) on credit risk adjustments in the context of the calculation of the risk-weight of defaulted exposures under the standardized approach. The proposed amendments follow up on the EC Action Plan to tackle non-performing loans (NPLs) in the aftermath of the COVID-19 pandemic, which indicated the need to revise the treatment of defaulted exposures under the standardized approach. The consultation runs until September 24, 2021.

    As part of the Action Plan, EC requested EBA to consider the appropriate prudential treatment of the risk-weight for defaulted exposures, following the sale of a non-performing asset. It is noted that a 100% risk-weight—compared to the normal risk-weight of 150%—can be applied when provisions cover for more than 20% of an exposure. However only provisions/write-downs (credit risk adjustments) made by the institution can be accounted for, but not the write-downs accounted for in the transaction price of the exposure. The proposed amendments allow for the recognition of such write-downs accounted for in the transaction price of the exposure, which are retained by the seller, in the credit risk adjustments recognized for the determination of the risk-weight of defaulted exposures applied by the buyer under the standardized approach. This is done via the introduction of an amount (that could be seen as a “discount”) that would have to be added to the amount of specific credit risk adjustment used to determine appropriate risk-weight under Article 127(1) of the Capital Requirements Regulation (CRR or Regulation 575/2013). As a consequence, the amount used to determine the risk-weight under Article 127(1) of the CRR is designed in such a way that the purchase of an asset with a discount equal to the amount of specific credit risk adjustments that were assigned to the exposure by the seller does not change its risk-weight. However, the discount is defined in a dynamic way, to consider any future revaluations of the exposure.

    One of the proposed amendments to the existing technical standards on credit risk adjustments introduces a change to the recognition of total credit risk adjustments, which ensures that the risk- weight can remain the same in both cases. The price discount stemming from the sale will be recognized as a credit risk adjustment for determining the risk-weight. By implementing this change through an amendment to the technical standards, EBA aims to clarify the regulatory treatment of sold NPL assets. However, EBA also recommends that the treatment set out in the technical standards be included in the EC considerations as part of the revised Capital Requirements Regulation (CRR3) proposal, which is expected at a later stage. After the consultation period, the final draft regulatory technical standards will be subsequently submitted to EC for endorsement before being published in the Official Journal of the European Union.

     

    Related Links

    Comment Due Date: September 24, 2021

    Keywords: Europe, EU, Banking, Credit Risk Adjustments, Credit Risk, Standardized Approach, NPLs, CRR, Basel, CRR3, Regulatory Technical Standards, Regulatory Capital, Investment Firms, EBA

    Featured Experts
    Related Articles
    News

    APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness

    APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).

    December 02, 2021 WebPage Regulatory News
    News

    EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance

    The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).

    December 01, 2021 WebPage Regulatory News
    News

    FSB Sets Out Good Practices for Crisis Management Groups

    The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.

    November 30, 2021 WebPage Regulatory News
    News

    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.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Releases Annual Report 2021-2022

    The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.

    November 29, 2021 WebPage Regulatory News
    News

    OSFI Updates Timeline for Implementation of Certain Basel Rules

    Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.

    November 29, 2021 WebPage Regulatory News
    News

    EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR

    EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.

    November 29, 2021 WebPage Regulatory News
    News

    FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR

    The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.

    November 29, 2021 WebPage Regulatory News
    News

    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.

    November 29, 2021 WebPage Regulatory News
    News

    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.

    November 29, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7751