2020/04/28

The European Commission (EC) adopted an amending regulation and interpretative communication (addressed to the European Parliament and the Council) through which it aims to use the full flexibility of the EU's banking rules and targeted legislative changes to enable banks to continue lending to households and companies during the COVID-19 crisis. The proposed amendments to the revised Capital Requirements Regulation (CRR II) include exceptional temporary measures, such as,

  1. “re-starting” the transitional arrangements to alleviate the impact from ECL provisioning under IFRS 9 on own funds;
  2. temporarily extending the minimum loss coverage treatment that is currently applicable to NPEs guaranteed or insured by export credit agencies to those NPEs arising because of the COVID-19 pandemic and covered by the various (national) guarantee schemes;
  3. modification of the offsetting mechanism associated with the competent authorities’ discretion to allow credit institutions to temporarily exclude exposures in the form of central bank reserves from the calculation of the leverage ratio;
  4. deferral of the application date of the new leverage ratio buffer requirement for G-SIBs by one year to 1 January 2023;
  5. bringing forward the application date (to the date of entry into force of the relevant regulatory technical standards (RTS)) of the provisions on the capital benefits treatment of certain software assets envisaged in the CRR; and
  6. immediately applying (that is, with entry into force of the proposed amending regulation) some of the capital benefits envisaged in the CRR but not yet applicable:
    1. the provisions on certain loans backed by pensions or salaries,
    2. the revised supporting factor for small and medium enterprises (SMEs), and
    3. the new supporting factor for infrastructure finance.

The EC’s interpretative communication confirms the recent statements by the BCBS, EBA and ECB by encouraging banks and supervisory authorities to make use of the flexibility in the EU's accounting and prudential frameworks, e.g., public and private moratoria on loan repayments (EBA guidelines of 2 April). It also encourages banks to refrain from making dividend distributions to shareholders or to adopt a conservative approach to the payment of variable remuneration.

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