Impact of Covid-19 on the EU banking sector: the EBA issues clarifications on its measures

ABBL Published 03.04.2020

As the contagion is hitting more and more countries, the EU is continuing to issue specific measures to counter the effects of the human and economic crises. Among the priorities of the European institutions there is the need to guarantee lending into the real economy for businesses and households. To this purpose, the European Banking Authority (EBA) has already called for flexibility in the prudential framework and supervisory approaches but, on 2 April, it clarified its expectations in relation to dividend and remuneration policies. In its statement it also provided additional guidance on how to use flexibility in supervisory reporting and recalled the necessary measures to prevent money laundering and terrorist financing (ML/TF).

First, the EBA expressed its support for all the measures taken so far to ensure banks maintain a sound capital base and provide the needed support to the economy. In this respect, the Authority recommended institutions to refrain from the distribution of dividends or share buybacks for the purpose of remunerating shareholders. The remuneration policies of financial institutions should be assessed in line with the risks stemming from the economic situation.

Second, the EBA called for competent authorities to offer leeway on reporting dates, urging one-month flexibility for reports with remittance dates between March and the end of May 2020. The EBA also stressed the need for flexibility in assessing deadlines of institutions’ Pillar 3 disclosures. According to the Authority, this flexibility would not put at risk the access to crucial information on banks’ capital, risks and liquidity, which is needed to monitor closely their financial and prudential situation. Also, the EBA decided, in coordination with the Basel Committee on Banking Supervision, to cancel the Quantitative Impact Study based on June 2020 data.

Finally, as measures to prevent money laundering and terrorist financing remain a priority, the EBA demanded competent authorities to support financial institutions’ ongoing efforts in this fight by sharing information on emerging ML/TF risks, setting clear regulatory expectations and using supervisory tools flexibly.

By Silvia De Iacovo

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