Featured Product

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    May 20, 2020

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic. The opinion was issued in response to a request from the European Council and the European Parliament to provide an opinion on the proposed regulation amending the Capital Requirements Regulations (CRR and CRR2) with regard to adjustments in response to the COVID-19 pandemic. In its opinion, ECB welcomes the targeted adjustments to CRR, as they further increase the capacity of the banking system to mitigate the economic impact of the pandemic and support recovery, while preserving the key elements of the prudential framework.

    Some elements of the proposed regulation are complementary to the mitigating supervisory measures taken by ECB while certain other measures recently agreed to by BCBS require amendments to the EU legal framework to become operational. In its opinion, ECB sets out certain specific observations on the following topics:

    • Transitional arrangements for mitigating the impact of IFRS 9 provisions on regulatory capital. Article 473a of CRR contains transitional arrangements allowing institutions to add back to their common equity tier 1 (CET1) capital a portion of any increase in provisions due to the introduction of expected credit losses (ECL) accounting under IFRS 9. ECB supports the amendment of Article 473a of CRR to allow credit institutions to add back to their CET1 capital an amount limited to the increase attributable to the dynamic component of the ECL provisions after December 31, 2019. This solution would allow to tailor the scope of additional measures to address the effects related to COVID-19 crisis, distinguishing them from the day-one impact that the increase in provisions had on CET1 capital due to the introduction of IFRS 9. 
    • Treatment of publicly guaranteed loans under the non-performing exposure (NPE) prudential backstop. ECB welcomes proposal to temporarily extend the more beneficial treatment of Article 47c(4) of CRR to NPEs guaranteed by the national governments or other public entities. The proposal removes an arbitrary distinction between guarantees given by different public entities with a similar credit standing.
    • Date of application of the leverage ratio buffer. On March 27, 2020, BCBS issued a statement on postponement of the timeline for implementing the final elements of the Basel III reform by one year, including the leverage ratio buffer for global systemically important banks, which will become applicable in EU on January 01, 2022. The proposed regulation envisages an alignment of the applicable timeline in CRR with the new timeline that is January 01, 2023 (rather than January 01, 2022). ECB supports the decision to make use of the extended timeline agreed at the international level, for the finalization of Basel III reforms for the purpose of their transposition into EU law.
    • Offsetting the impact of excluding certain exposures from the leverage ratio calculation. ECB welcomes that the proposed regulation implements a targeted exclusion of an increase in central bank reserves, which can support a smooth implementation and transmission of monetary policy measures. For the exclusion to be fully effective, ECB suggests certain modifications. Competent authorities should, therefore, be able to set the reference date for recalibration so that the recalibration remains stable for the period of the exceptional circumstances. In addition, the competent authorities should be able to recalibrate on the basis of a reference period, rather than a reference date. The average amount of eligible central bank reserves over the period would then be taken into account in the recalibration. 
    • Possible further changes to certain aspects of market risk requirements. BCBS standard on market risk internal models contains sufficient flexibility for competent authorities with regard to the treatment of back-testing overshootings in extraordinary circumstances. While CRR does not contain an explicit reference to the extraordinary circumstances described in the BCBS text, some flexibility for the competent authority in assessing the results of the backtesting is allowed. However, the opinion highlights that CRR should be amended to ensure that, in extraordinary circumstances, competent authorities can take appropriate action, in line with the BCBS standard. For this purpose, the competent authorities should be given further flexibility to allow them to temporarily adjust the number of overshootings (resulting from both actual and hypothetical losses) or take other appropriate action. It would also be important that the competent authority should exercise this power across all supervised entities with regard to their respective internal models, rather than on an individual basis. 


    Related Link: Opinion (PDF)

    Keywords: Europe, EU, Banking, COVID-19, Opinion, CRR, Regulatory Capital, Basel, Credit Risk, Market Risk, NPE, Leverage Ratio, Implementation Timeline, ECL, IFRS 9, BCBS, ECB

    Featured Experts
    Related Articles

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    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.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    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.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    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.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    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.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    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.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    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.

    December 22, 2022 WebPage Regulatory News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697