COVID-19: Council adopts exceptional rules to facilitate bank lending in the EU
The EU is temporarily adjusting banking rules in order to maximize the ability of banks to lend money and helping households and businesses recover from the COVID-19 crisis.
The banking package adopted today provides for targeted and exceptional legislative changes to the Capital Requirements Regulation (CRR 2). These changes will allow credit institutions to fully play their role in managing the economic shock resulting from the COVID-19 pandemic by promoting credit flows.
Thanks to reforms carried out after the 2008 financial crisis, banks are sufficiently capitalized and resilient to act as shock absorbers for businesses affected by the COVID-19 pandemic. But we are only in the very early stages of recovery. It is our responsibility, as co-legislators, to ensure that banks have the necessary flexibility to continue to provide the easiest possible access to finance for our citizens and businesses.
Zdravko Marić, Deputy Prime Minister and Minister of Finance of Croatia
More specifically, the targeted modifications concern:
- changes in the minimum amount of capital that banks are required to hold non-performing loans (NPL) as part of the “prudential backstop”. In particular, the preferential treatment of NPLs guaranteed by export credit agencies will be extended to other public sector guarantors as part of measures to mitigate the economic impact of the COVID-19 pandemic.
- the two-year extension of transitional provisions related to the implementation of the international accounting standard IFRS 9. This will allow banks to mitigate the potential negative impact of a likely increase in bank provisions for expected credit losses.
- the temporary reintroduction of a prudential filter for sovereign bond exposures which will mitigate the impact of the current volatility of financial markets on public debt.
- additional flexibility for supervisors mitigate the negative effects of extreme market volatility observed during the COVID-19 pandemic, in particular by excluding the “overruns” that occurred in 2020 and 2021 in the internal models of banks for market risks.
- targeted modifications to the leverage ratio calculation (i.e. the ratio between bank capital and its exposures) and a delay in introducing leverage ratio buffer one year until January 2023.
- transitional arrangements for exposures to national governments and central banks denominated in a currency of another Member State, to support financing options in non-euro area member states to mitigate the consequences of the COVID-19 pandemic.
- the early introduction of certain capital relief measures for banks under CRR 2, in particular with regard to the preferential treatment of certain loans backed by pensions or salaries and their loans to SMEs and infrastructure, thus promoting the flow of credit to retirees, employees, companies and investments in infrastructure.
The package of measures was adopted by the European Parliament on June 19, 2020. It will become applicable the day following its publication in the Official Journal of the European Union and at the end of June 2020 at the latest.