On 18 June 2020 the European Parliament adopted its legislative report on the targeted amendments to the Capital Requirements Regulation (CRR “quick fix”). The Parliament’s position reflects a compromise agreed with Member States in informal negotiations that preceded the vote. This paves a way for a formal adoption, publication in the EU Official Journal and entry into force taking place by the end of June 2020. The “quick fix” legislation has been intended to help credit institutions to mitigate impact of the COVID-19 outbreak and to provide incentives for banks to continue lending to business and consumers. Main amendments include:
- Leverage ratio: deferred application of the leverage ratio buffer by one year (until January 2023), advanced application of the revised, more favourable calculation of the leverage ratio exposure value of regular-way purchases and sales awaiting settlement.
- Total exposure: introduction of a temporary (until 27 June 2021) exclusion of certain exposures to central banks from the total exposure measure. An institution that excludes from its total exposure measure exposures to its central bank will have to disclose the leverage ratio it would have if it did not exclude those exposures.
- Back-testing and exclusion of “overshootings”: introduction of additional flexibility for competent authorities to mitigate the negative effects of the extreme market volatility observed during the COVID-19 pandemic should be introduced to exclude the overshootings that occurred between 1 January 2020 and 31 December 2021, which are not a result of deficiencies in internal models.
- SME and infrastructure supporting factors: advanced application of both supporting factors (effective on the date of entry into force of the CRR “quick fix”, instead of June 2021), allowing for a more favourable prudential treatment of such exposures.
- Prudential filter: introduction of a temporary permission (for a period from 1 January 2020 to 31 December 2022) to calculate unrealised losses on banks’ holdings of public debt and to remove them from its Common Equity Tier 1, designed to mitigate the considerable negative impact of the volatility in central government debt markets on banks’ regulatory capital.
- Treatment of public debt exposures: introduction of a temporary (until 31 December 2024) favourable treatment of exposures to the central governments and central banks of Member States denominated and funded in the domestic currency of another Member State.
The CRR “quick fix” will enter into force and become applicable on the day following its publication in the EU Official Journal, which is expected to take place over the coming days