COVID-19: the adaptation of the EU’s Capital Requirements Regulation - Part II

ABBL Published 29.05.2020

On 18 May, the ECON Committee of the European Parliament discussed the Commission’s proposal to amend the Capital Requirements Regulation. During the exchange of views, even if most members were connected to the meeting via video call, the division between the different political groups became clear. On the one side, there were the major political groups – the center-left S&D and the center-right EPP – that supported the original proposal of the Commission, with a few reservations with respect to the leverage ratio buffer and the transitional period for the treatment of government bonds issued by non-euro area member states. On the other side, the Greens and the European United Left (GUE) expressed their concerns for the lack of additional obligations for banks, and stood firmly against the adoption of the “CRR quick-fix” via a simplified procedure. In the middle, the liberal and conservative groups – Renew, ECR and ID – asked for a more in-depth discussion on the expansion of the scope of the transitional arrangements of IFRS 9 and on treatment of public guaranteed loans under the NPLs backstop. They, nevertheless, supported the simplified procedure for the adoption of the proposal, meeting the approach taken by the S&D and EPP.

The Commission also participated in the discussion, represented by Ms Nathalie Berger, Head of Unit at DG FISMA for bank regulation and supervision. She underlined the urgency of this proposal to give full effectiveness to the measures adopted in the context of COVID-19 and allow the smooth integration of those support measures in the accounting and prudential framework. In response to the issues raised by the Greens and GUE, she explained the principles that guided the Commission in drafting the proposal, i.e. the measures are intended to be specific, temporary and well-circumscribed. Then, Ms Berger clarified some aspects of the Interpretative Communication published by the Commission with the proposal. On the flexibility embedded in the accounting and prudential framework, the Commission expects banks to exercise restraint to preserve much needed capital in this period, notably by suspending distributions, payments of dividends and share buy-backs, as well as bonuses. Furthermore, the Commission will monitor how banks implement the relief measures and the recommendations made by the supervisors and competent authorities and will launch a dialogue to discuss what measures have been taken and implemented, where consumers’ representatives would be able to express their views.

At the end of the exchange of views, the political division inside the Committee clearly manifested with the rejection of the simplified procedure: the Greens and the far-left GUE put in their de-facto veto and demanded for the package to be adopted via a regular procedure, underlining the importance of these measures for the future of the banking sector. On May 20, the Chair of ECON, Irene Tinagli, after a meeting with the coordinators of the political groups, announced that the legislative proposal will be adopted via a regular procedure, to be conducted in English only, with an accelerated timetable. The deadline for tabling amendments has been set for 2 June and the ECON Committee will vote on 8 June, aiming at the plenary vote on 17-18 June, as in the original plans.

By Silvia De Iacovo

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