COVID-19: EU’s Capital Requirements Regulation quick fix – final act

ABBL Published 30.06.2020

A few weeks ago, we had already reported from Brussels on the adjustments to the prudential framework for banks known as CRR 2 to help the economy to cope with the fallout from the COVID-19 crisis. After going through an accelerated procedure in both the European Parliament and the Council, the act was finally adopted by a written procedure on Wednesday, 24 June.

Among the adopted changes is the extension by two years of the transitional arrangements for IFRS 9 and the deferred application of the leverage ratio buffer by one year to January 2023. Furthermore, a more favourable prudential treatment was introduced for both certain exposures to SMEs and infrastructure, and for loans to pensioners or employees with a permanent contract. Moreover, non-performing loans (NPLs) guaranteed by the public sector will have the same value as those guaranteed by official export credit agencies thanks to the alignment of minimum coverage requirements. The proposal will also make sure that banks will no longer be required to deduct certain software assets from their capital, thus supporting an accelerated digitalisation of the banking sector. Finally, to support funding options in non-euro member states, the legislator reintroduced transitional arrangements related to preferential treatment for when governments and central banks are exposed to bonds denominated in currencies of non-euro member states and prolonged transitional arrangements regarding their treatment under the large exposure limits.

The new rules will enter into force in the coming weeks, on the day following its publication in the Official Journal of the EU. This will happen at the latest by the end of June 2020 (i.e., in time for the end of Q2).

By Antoine Kremer and Silvia De Iacovo

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