European Central Bank Publishes Guideline on Default Definition for Less Significant Eurozone Institutions07/07/2020The European Central Bank, Banking Supervision division has published a guideline harmonizing the threshold for assessing the materiality of credit obligations past due for the purposes of default assessments under the EU Capital Requirements Regulation. CRR defines the circumstances in which an obligor under a credit obligation will be deemed to be in default. The materiality of the credit obligation is relevant for these purposes, and CRR grants competent authorities the discretion to determine, according to their view of a reasonable level of risk, the threshold against which materiality should be measured.
The ECB is the prudential competent authority for "significant" Eurozone credit institutions (which include those with a total value of assets exceeding €30bn or a ratio of total assets over Member State GDP exceeding 20%) and had previously defined the materiality threshold for these institutions. Eurozone national regulators are responsible for supervising so-called "less significant institutions" that do not meet this threshold. The ECB's guideline now requires national regulators to exercise their discretion for less significant institutions in the same way as the ECB does for significant institutions, to ensure consistency of application.
According to the guideline, a Eurozone less significant credit institution must notify its national regulator of the date on which it will begin applying the threshold for the assessment of the materiality of a credit obligation past due, which must be no later than December 31, 2020.
View the ECB's guideline.
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