Shearman & Sterling LLP | FinReg | European Banking Authority Report on Implementation of EU Prudential Framework During COVID-19
Financial Regulatory Developments Focus
This links to the home page
Blog
FILTERS
  • European Banking Authority Report on Implementation of EU Prudential Framework During COVID-19
    07/07/2020
    The European Banking Authority has published a report on the implementation of certain prudential policies introduced by the EBA to deal with the effects of the COVID-19 pandemic. The report focuses on two areas in particular: implementation issues around the EBA's Guidelines on legislative and non-legislative moratoria on loan repayments and the criteria that institutions should follow for the identification and treatment of operational risk events and losses.
     
    The EBA's Guidelines on payments moratoria confirm that such moratoria do not automatically trigger forbearance classification for the purposes of the Capital Requirements Regulation, and were recently extended to cover all moratoria applied before September 30, 2020. Since the publication of the Guidelines, the EBA has received questions on their application and has therefore set out in the report responses to many of the issues raised. The report focuses in particular on the following three issues:
     
    • The meaning of "similar payment relief measures", including clarification on what would constitute "similar" measures;
    • The effect of the moratoria on net present value; and
    • The extent to which credit institutions are permitted to submit selection criteria in reviewing applications for moratoria.
     
    The report also provides an overview of the manner in which the moratoria have been applied across Member States. In general, there has been broad participation in the moratoria (with over 90% of the banking industry participating in the scheme on average and a higher figure for legislative moratoria) with most Member States setting the starting dates for moratoria in March or April 2020. A wide variety of selection eligibility criteria have been applied by credit institutions, including the obligor's sector, residence, performance and payment capacity.
     
    The report then sets out guidance on the operational risk treatment that credit institutions should apply to the following five key impact areas (which have arisen from COVID-19): business continuity, ordinary course of business, loss events, credit risk and potential consequences on credit risk and the implementation of novel legislation in response to COVID-19. In each case, the EBA recommends how events or losses should be treated for operational risk purposes.
     
    View the EBA's report on the implementation of the prudential framework in light of COVID-19.
     
    View details of the EBA's Guidelines on treatment of COVID-19 payments moratoria.
     
    View details of the EBA's update to its Guidelines.
     
    Return to main website.