Featured Product

    FINMA Allows Temporary Exemptions for Banks Amid COVID-19 Crisis

    March 31, 2020

    FINMA published Guidance 02/2020, which provides banks with clarifications on dealing with the COVID-19 credits with federal guarantees within the framework of the capital and liquidity requirements, on temporary exemptions related to the leverage ratio, and on risk-diversification requirements. FINMA is providing information about the expected credit loss (ECL) approach under IFRS 9 and its application in the context of the COVID-19 crisis. FINMA also notified that it supports the liquidity package adopted by the Swiss Federal Council.

    The Swiss government, SNB, and FINMA have already taken various measures to limit the consequences for the economy and the financial system. These measures include COVID-19 ordinance of Swiss Federal Council on joint and several guarantees, the deactivation of the countercyclical capital buffer proposed by SNB and approved by the Swiss Federal Council, and the temporary exemption introduced by FINMA in relation to the leverage ratio. Furthermore, the Swiss Federal Council supported the recommendations made by FINMA and SNB, recommending a prudent distribution policy and welcoming the suspension of share buyback programs.

    • Capital requirements for COVID-19 credits with federal guarantees—Credits granted under the COVID-19 ordinance on joint and several guarantees will be jointly and severally guaranteed by the loan guarantee cooperatives to 100% or 85% of their value respectively and will in turn be guaranteed by the Confederation.
    • Liquidity Coverage Ratio (LCR) calculation taking into account the SNB COVID-19 refinancing facility—For credit facilities granted to companies within the scope of the COVID-19 program, no outflow should be entered for the part covered by the SNB COVID-19 refinancing facility. SNB refinancing facility can be considered as a collateral with Level 1 high-quality liquid assets (HQLA).
    • Exemptions relating to the leverage ratio—The regulatory framework of the leverage ratio provides that all balance sheet items should be backed by capital, regardless of the risk. The leverage ratio thus serves as a complement to the risk-weighted approach. Unusually high cash deposits held at central banks, as in the current situation, can, therefore, lead to a reduction of the leverage ratio without increasing the banks’ risk. FINMA considers this pro-cyclical effect to be counterproductive in the present environment and will, therefore, temporarily allow banks to calculate the leverage ratio without central bank reserves. This measure initially applies until July 01, 2020 and can be extended, if necessary.
    • Exemptions relating to risk diversification—Owing to market turbulence, increasing margin payments to counterparties have been necessary. This can lead to the upper limit of 25% or 100% of Tier 1 capital being exceeded in the context of the risk diversification requirements. To give banks more time to manage such increased positions if needed, the otherwise strict upper limit may be exceeded temporarily.
    • IFRS 9 and COVID-19—FINMA expects the affected banks to continue to observe the requirements of IFRS 9. However, FINMA calls on the affected banks to take into account the document published by the IASB on March 27, 2020 related to IFRS 9 and COVID-19. FINMA further notes that the support measures taken by authorities and governments around the world in connection with COVID-19 are to be incorporated in their forward-looking considerations of expected credit loss, or ECL, estimates.

    In this environment, a prudent distribution policy is a preventive measure to ensure that the current robustness remains, even in the event of an extended economic downturn. FINMA welcomed the decision of all Swiss financial institutions to suspend their share buyback programs. Moreover, FINMA reiterates that the capital freed up through relief in the leverage ratio calculation is not to be distributed. For banks whose shareholders approved, after March 25, 2020, dividends or other similar distributions related to 2019, or who plan to seek such shareholder approval, the capital relief will be reduced by the amount of the said distributions.

     

    Related Links

    Keywords: Europe, Switzerland, Banking, COVID-19, LCR, Capital Requirements, HQLA, Leverage Ratio, Liquidity, ECL, IFRS 9, Risk Diversification, CCyB, Tier 1 Capital, Refinancing Facility, SNB, Swiss Federal Council, FINMA

    Featured Experts
    Related Articles
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    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.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    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.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    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.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    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.

    March 02, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    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).

    March 01, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    News

    EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models

    EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.

    March 01, 2021 WebPage Regulatory News
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    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.

    February 26, 2021 WebPage Regulatory News
    News

    EBA Publishes Single Rulebook Q&A Updates in February 2021

    The EBA Single Rulebook question and answer (Q&A) tool updates for this month include answers to ten questions.

    February 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6648