COVID 19 : Adapting the EU’s Capital Requirements Regulation

ABBL Published 15.05.2020

As the coronavirus-induced lock-down is taking its toll not only on citizen’s health and moral, but also on the economy, the EU institutions and authorities in charge of banking (ECB, EBA, …) have reacted by giving some interpretative leeway and improving banks’ access to ECB cash. The European Commission’s banking package presented on 28 April is to be seen as a legislative addition to the above. It consists in an interpretative communication and most importantly in a limited number of proposed changes to the capital requirements regulation (CRR). The aim of the package is to facilitate banks’ lending to households and businesses feeling the impact of the virus-induced crisis.

The “CRR quick-fix” as it has soon been baptized unofficially consists of a number of temporary measures. The latter include primarily an adaption of the IFRS 9 accounting timeline, more favorable treatment of public guarantees used in the current context, a postponement of the leverage ratio buffer as well as changing the way of excluding certain exposures from the leverage ratio calculation. Furthermore, other measures aim at advancing the application date of several measures incentivizing banks to finance employees, SMEs and infrastructure projects.

As the crisis bites, time is of the essence. The EU co-legislators – operating themselves in lock-down conditions – have launched a quick procedure to adopt the text as soon as possible.

In the Council, the Financial Services Working Party held a first meeting on 13 May, where Member States exchanged views. Most Member States broadly agree with the Commission proposal, while some would like the measures to be bolder in order to respond to economic difficulties. The Croatian Presidency has warned against too significant changes to the proposal, keeping in mind that the European Parliament also needs to agree to them. Indeed, too ambitious changes might trigger longer than expected negotiations.

In the European Parliament the simplified procedure is being proposed in order to ensure a speedy process. This procedure relies on the involvement of a limited number of actors, with a veto right of the parliamentary committee should a set minimum number of MEPs request a vote. An unofficial meeting has already taken place between key players in advance of a first exchange of views in the relevant parliamentary committee (ECON) scheduled for Monday 18 May. The meeting will decide on the procedure, giving further insight on whether the European Parliament will aim for amendments (to be agreed with the Council) or not, and where these amendments might lie.

The target date currently discussed is to have the agreement between the co-legislators ready for the 17-18 June plenary of the European Parliament, and a speedy publication in the Official Journal of the European Union afterwards.

By Antoine Kremer


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