BoE announced changes to the Term Funding Scheme with additional incentives for SMEs (TFSME) to support the Bounce Back Loan Scheme of HM Treasury. Along with this announcement, PRA confirmed that banks subject to the UK leverage ratio will be able to exclude loans under the Bounce Back Loan scheme from the UK leverage ratio exposure measure. Later, PRA also published a statement on credit risk mitigation eligibility and leverage ratio treatment of loans under the Bounce Back Loan Scheme.
HM Treasury recently launched the COVID-19 Bounce Back Loan scheme or BBLS. In its statement, PRA has set out observations on the risk-weighted treatment of exposures under this scheme, particularly eligibility for recognition as unfunded credit risk mitigation under the Capital Requirements Regulation (CRR) and a related change to the UK leverage ratio framework. PRA encourages firms to review relevant articles of the CRR and any relevant PRA rules and guidance, including expectations set out in the PRA Supervisory Statement SS17/13 titled "Credit risk mitigation." A guarantee is one form of unfunded credit protection which, where it meets the conditions in Articles 194 and 213-215 CRR, may allow a firm to adjust risk-weights and expected loss amounts. The Bounce Back Loan Scheme guarantee has been provided by the Secretary of State in the context of the COVID-19 pandemic. PRA considers that the terms of the guarantee provided by the Secretary of State under the scheme do not contain features that would render these guarantees ineligible for recognition as unfunded credit risk protection and the effects of these guarantees would appear to justify such treatment.
PRA is offering a modification by consent for banks subject to the UK Leverage Ratio Part of the PRA Rulebook to exclude loans under this scheme from the leverage ratio total exposure measure, if they choose to do so. It also permits firms to exclude loans made pursuant to schemes of a similar character which are 100% guaranteed by a government or central bank of an European Economic Area state or the ECB, provided that such loans do not exceed EUR 60,000 per loan. PRA will consider further modifications for substantively similar European Economic Area schemes that do not meet these criteria on a case-by-case basis. PRA also published a Direction for modification by consent of the exclusion of loans under the Bounce Back Loan Scheme. The Direction addresses modifications to leverage ratio reporting and public disclosure rules that provide that the quarterly average figures, to be disclosed or reported for the quarter in which the modification first applied, shall reflect the modification as if it had applied on each day of the quarter.
The TFSME, which was modified to support the Bounce Back Loan Scheme, allows eligible banks and building societies to access four-year funding at rates very close to Bank Rate. The scheme is designed to incentivize eligible participants to provide credit to businesses and households to bridge through the period of economic disruption caused by the outbreak of COVID-19. The scheme includes additional incentives to provide credit to small and medium enterprises or SMEs.
- Update on Term Funding Scheme
- Statement on Regulatory Treatment
- Modification of Consent on Leverage Ratio (PDF)
- Direction to Modification of Consent (PDF)
- Overview of Term Funding Scheme
Keywords: Europe, UK, Banking, Loan Guarantee, Leverage Ratio, CRR, Regulatory Capital, Credit Risk, BBLS, COVID-19, HM Treasury, PRA, BoE
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.