On 29 April 2020 we blogged that in the context of COVID-19 the European Commission published a legislative proposal for targeted amendments to the Capital Requirements Regulation (CRR). A legislative process is currently underway, with both the Council (Member States) and the European Parliament conducting their respective reviews. On 13 May 2020, a meeting of the Council’s Working Party on Financial Services took place, with the only agenda item being consideration of the Commission’s proposal and a note that the Croatian Presidency of the Council circulated in advance of the meeting.
In order to progress discussions on the Commission’s proposal, the Presidency canvassed opinions of all Member States, the great majority of which provided written comments. While the majority of Member States broadly supported the Commission’s proposal and the “quick fix” approach – and as such consider it as being a good basis for the compromise position of the Council – some Member States are of the view that the targeted amendments might not be enough to moderate the impact of the COVID-19 outbreak on the European banking sector. The Presidency is cautious against opening up the proposed text for further far-reaching amendments, as doing so would undermine the purpose of the “quick fix” proposal. That said, the Presidency identified a set of issues that – in their view – warrant further discussion between Member States. These include: expected credit loss accounting under IFRS 9, phase-out of the static component in the transitional regime, re-calibrating the start amount of the dynamic component, rescaling of certain exposure values, treatment of sovereign bonds in Euro issued by non-Euro area Member States, treatment of unrealised gains and losses under bank capital requirements as well as eligible guarantee providers under a common loss coverage framework (“NPL backstop”).
In respect of the European Parliament, we understand that the Economic and Monetary Affairs Committee (ECON) considers using a simplified procedure for the review and adoption of the CRR “quick fix” proposal. The procedure allows ECON to adopt its position with no or very limited amendments. First discussion in the ECON committee on the Commission’s proposal and a decision on a procedure is scheduled for 18 May 2020. With simultaneous progress on the Council’s side, it is expected that the final legislative act will be adopted before the end of June and published in the EU Official Journal soon afterwards.