Legislative proposals to mitigate the negative economic impact of coronavirus relating to bank lending
The European Commission adopted a new banking package to facilitate bank lending for households and businesses, aiming to mitigate the economic impact of the Coronavirus pandemic across the European Union.
Commission, also, clarified how the EU rules should be applied by banks and supervisors in a flexible but responsible manner, so that they can continue to lend to businesses and households in the current context.
The legislative proposals proposed by the Commission aim to maximise the ability of EU banks to lend, while also ensuring their continued resilience. The proposals concerning the Capital Requirements Regulation (Regulation (EU) 575/2013) are the following:
1.Regarding the application of IFRS 9 (an international accounting standard), which sets out how companies should value financial assets and how they should measure the risk associated with lending, there is a potential negative impact. The application of IFRS 9 during the coronavirus may cause an erosion of bank’s capital. So, the Commission proposed the extension of the current transitional arrangements in the above Regulation by two years, in line with the international agreement of the Basel Committee. This would allow banks to add back to their regulatory capital any increase in new expected credit losses provisions that they recognise in 2020 and 2021 for their financial assets, which have not defaulted
2.According to the last revision of the Regulation, a leverage ratio buffer requirement on global systemically important institutions (G-SIIs) has been introduced. The date of application of this new leverage ratio buffer requirement was originally set for 1 January 2022. In the context of the Coronavirus pandemic and in line with the revised implementation timeline agreed by the Basel Committee, the date of application is proposed to be deferred by one year to 1 January 2023.
The legislative proposals will be discussed by the European Parliament and the Council. The targeted changes envisaged in the legislative proposal will be adopted in June 2020 in order to have the intended effect.