European Council Adopts Position on Capital Markets Recovery Package
Ambassadors of EU member states agreed on the mandate of European Council on the Capital Markets Recovery Package, to support economic recovery from the COVID-19 crisis. The amendments in the package focus on the the securitization framework as laid down in the Securitization Regulation and the Capital Requirements Regulation (CRR), the Markets in financial instruments directive (MiFID) II, and the Prospectus Regulation. European Council lends full political support to the EC package, while suggesting changes to some of the detailed provisions.
With respect to securitizations, the proposed amendments extend the existing EU framework for simple, transparent, and standardized (STS) securitizations to synthetic securitizations. Synthetic securitizations are an important credit risk management tool for banks, as they enable banks to transfer the credit risk of a set of loans, typically large corporate loans or small and medium-size enterprise (SME) loans, to investors. In addition, regulatory obstacles to the securitization of non-performing exposures are removed to support banks in offloading non-performing exposures from their balance sheets in the context of the COVID-19 crisis, while maintaining high prudential standards.
European Council suggests complementing the EC proposals with a dedicated prudential treatment for synthetic excess spread (SES) in the CRR. SES is a credit enhancement tool and a common feature in synthetic securitization transactions; however, this tool could be misused for regulatory arbitrage. The introduction of dedicated and comprehensive regulatory capital requirements for SES addresses the risk of a potential misuse of SES for arbitrage purposes for all synthetic securitization transactions, irrespective of whether they meet the STS criteria or not. On the basis of this mandate, the presidency will start negotiations with the European Parliament as soon as the Parliament has adopted its position.
Related Links
Keywords: Europe, EU, Banking, Securities, COVID-19, CRR, Basel, Securitization, Securitization Regulation, STS Securitization, Capital Markets Union, Credit Risk, NPE, EC, European Council
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
MAS Extends Facility to Support Lending to SMEs Amid COVID-19 CrisisRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
