06 December 2019
The European Banking Authority (EBA) published today its Action plan on sustainable finance outlining its approach and timeline for delivering mandates related to environmental, social and governance (ESG) factors. The Action plan explains the EBA’s sequenced approach, starting with key metrics, strategies, risk management and moving towards scenario analysis and evidence for any adjustments to risk weights. The Action Plan also aims to communicate key messages on the EBA’s policy direction and the expectations from financial institutions on areas where action is needed now to support the move towards more sustainable finance in the EU.
Climate change and the response to it by the public sector and society in general have led to an increasing relevance of ESG factors for financial markets. It is, therefore, essential that financial institutions are able to measure and monitor the ESG risks in order to deal with transition and physical risks.
As the exact manifestation of transition and physical risk remains uncertain, the EBA encourages financial institutions to act now to incorporate ESG factors into their business strategies, and to identify measure and monitor ESG risks including simple metrics, such as a green asset ratio. To this end, they can then use scenario analysis as an explorative tool to understand the relevance of the exposures affected by and the potential magnitude of the ESG risks.
Jose Manuel Campa, the EBA Chairperson, highlighted the importance of acting now on sustainable finance and said: “The urgent need to act explains why we have also set out early expectations for interim measures, including the identification of simple metrics that can foster market discipline and allow banks to set clear green strategies”
To support this, the EBA’s work will follow the sequencing reflected in its legal mandates and start with a focus on strategy and risk management and associated key metrics and disclosure. In the second stage, the EBA aims to develop a dedicated climate change stress test. The third stage of the work will look into the evidence around the prudential treatment of “green” exposures. The rationale for this sequencing is the need firstly to understand institutions’ current business mix from a sustainability perspective in order to measure and manage it in relation to their chosen strategy, which can then be used for scenario analysis and later for the assessment of an appropriate prudential treatment.
Legal basis, background and next steps
The EBA’s remit and mandates on ESG factors and risks are set out in the following legislative acts:
• amended EBA Regulation
• revised Capital Requirements Regulation (CRR 2) and Capital Requirements Directive (CRD5)
• new Investment Firms Regulation (IFR) and Investment Firms Directive (IFD)
• Commission’s Action Plan: Financing Sustainable Growth and related legislative initiatives.
In the context of the EBA’s mandate to contribute to stability and effectiveness of the financial system, the work on sustainable finance aims to (i) improve the regulatory framework to foster their operation of institutions’ in a sustainable manner and (ii) provide supervisors with adequate tools to understand, monitor and assess ESG risks in their supervisory practices.
Sustainable finance can be broadly understood as financing as well as related institutional and market arrangements that contribute to the achievement of strong, sustainable, balanced and inclusive growth, through supporting directly and indirectly the framework of the Sustainable Development Goals.
The EBA will develop reports, guidelines, and technical standards, and incorporate ESG consideration in its risk analysis work following the general mandate included in the EBA Regulation and specific mandates provided in the sectoral legislation outlined above.
05 December 2019
The European Supervisory Authorities (ESAs) published today joint draft Regulatory Technical Standards (RTS) to amend the Delegated Regulation on the risk mitigation techniques for non-cleared OTC derivatives (bilateral margining) as well as a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral. BothRTS and the statement were developed to facilitate further international consistency in the implementation of the global framework agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO).
First of all, in view of the clarifications and changes of the global framework made over the past months by the BCBS and IOSCO, the report and related RTS clarify the expectations in relation to the threshold above which initial margin is expected to be exchanged, as well as introduce a further phase-in of one year for the smaller counterparties in scope for the initial margin requirements. Secondly, taking into account the progress made globally towards the implementation of the international framework as well as the risks that the BCBS and IOSCO framework was developed to address, a few amendments have been included in relation to the treatment of physically settled FX forward and swap contracts, intragroup contracts and equity option contracts. Lastly, the statement clarifies the view of the ESAs that amendments made to outstanding uncleared OTC derivative contracts for the sole purpose of introducing such fall-backs should not create new obligations on these legacy contracts.
Legal basis, background and next steps
The ESAs’ RTS and the statement were developed in order to facilitate further international consistency in the implementation of the global framework agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO).
The ESAs have developed the RTS under Article 11(15) of Regulation (EU) No 648/2012 of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories (EMIR).
The ESAs have now submitted the draft RTS to the Commission for endorsement in the form of a Commission Delegated Regulation, i.e. a legally binding instrument applicable in all Member States of the European Union. Following the endorsement, they are then subject to non-objection by the European Parliament and the Council.
The ESAs cannot disapply EU law. However, in view of the remaining steps mentioned above that the draft RTS need to go through before being finalised and entering into force, and in light of some of the soon approaching deadlines, with regards to the bilateral margin requirements and the treatment of physically settled FX forward and swap contracts, intragroup contracts, equity option contracts and the implementation of the last phase of the initial margin requirements as proposed in the draft RTS, the ESAs expect competent authorities to apply the EU framework in a risk-based and proportionate manner until the amended RTS enter into force.
Lastly, with regards to the statement in relation to fall-backs, the ESAs believe it useful to ensure legal certainty on this issue, in case or to the extent this is not already provided in some jurisdictions. While, neither the ESAs nor competent authorities possess any formal power to disapply directly applicable EU legal text, the ESAs are in contact with the co-legislators to see how a legislative change could be achieved to ensure this legal certainty.
04 December 2019
The European Banking Authority (EBA) published today the second part of its advice on the implementation of Basel III in the EU, which complements the Report published on 5 August 2019. Today’s publication includes an assessment of the impact of the revisions to the credit valuation adjustment (CVA) and market risk frameworks, and the corresponding policy recommendations. It also provides a macroeconomic impact assessment of the full Basel III package. When accounting for the 2019 FRTB standards, the impact assessment shows that the full implementation of Basel III, under conservative assumptions, will increase the current minimum capital requirement (MRC) by 23.6% on average. This impact is lower than the 24.4% originally estimated in the August 2019 report, and would imply an aggregate shortfall in total capital of EUR 124.8 billion. The macroeconomic impact assessment shows that the implementation of Basel III will have net benefits for the economy of the European Union. The EBA reaffirms its support for a full implementation of the final Basel III standards in the EU.
Key findings of the quantitative analysis
Considering the 2019 FRTB standards, the revised weighted average increase in the current MRC is 23.6% for the entire sample, under conservative assumptions. The lower impact compared to the August 2019 Report (24.4%) is due to a reduction in the impact of market risk (2.2% compared to 2.5%) and the lower impact of the output floor (8.6%, compared to 9.1%). This reduction is observed almost entirely among large banks. The estimated total capital shortfall is about EUR 124.8 billion (EUR 83.0 billion in terms of CET1), down from the EUR 135.1 billion shortfall in total capital (EUR 91.1 billion in CET1) estimated in the August 2019 report.
Table 1 Percentage change in T1 MRC (relative to current T1 MRC), by size
of which: G-SIIs
of which: O-SIIs
Table 2 Capital ratios and shortfalls, by size
Tier 1 capital
Current ratio (%)
Revised ratio (%)
Shortfall (EUR billion)
Current ratio (%)
Revised ratio (%)
Shortfall (EUR billion)
Current ratio (%)
Revised ratio (%)
Shortfall (EUR billion)
of which: G-SIIs
of which: O-SIIs
These results reported in Tables 1 and 2 do not take into account the targeted revisions to the CVA framework proposed by the Basel Committee in November 2019, which are expected to further reduce the overall impact. Under a scenario in which the SA-CVA and BA-CVA capital requirements are recalibrated downwards by 10%, the impact on CVA will move from 3.9% to 3.4% (reducing the total impact from 23.6% to 23.1%). Since the impact is broadly linear, a 20% reduction (the lower bound proposed by BCBS) would produce impacts of 2.9%.
Key findings of the macroeconomic impact assessment
The assessment of the macroeconomic costs and benefits of the finalisation of the Basel III framework was carried out in cooperation with the ECB.
The results show that the implementation of the Basel reforms will result in modest transitional costs, which fade over time. The long-term benefits are substantial and outweigh the modest transitory costs. The reform would mitigate the severity of future economic downturns through a reduction in both probability and intensity of future banking crises, leading to sizable long-term net benefits of around 0.6 percent of annual GDP level.
Key policy recommendations
The EBA also put forward detailed policy recommendations in the areas of CVA and market risk. Overall, it should be recalled that the EBA continues to support the full implementation of the final Basel III standards, which will contribute to the credibility of the EU banking sector and ensure a well-functioning global banking market. These reforms will increase financial stability, while at the same time allowing the continued use of risk-sensitive approaches.
In the area of CVA risk the EBA recommends that:
In the area of market risk, the EBA recommendations aim to ensure a smooth and consistent implementation of the revised market risk framework in the EU and, therefore, focus on issues identified in the market risk standards as implemented in the CRR/CRR2. In particular, they clarify the treatment for unrated covered bonds under the FRTB-SA, and support the use of the recalibrated (Basel II) standardised approach as a simplified approach for institutions not subject to the FRTB reporting requirement under the CRR2.
03 December 2019
The European Banking Authority (EBA) published today a factsheet addressed to European consumers to raise awareness on key steps they should consider when choosing financial services through digital means. This document will help consumers make better and more informed choices.
In particular, the factsheet includes tips consumers should bear in mind before choosing a service or when concluding an agreement for a particular service such as:
This document is also reproduced by the National Competent Authorities in their respective countries and contributes to the fulfilment of EBA’s consumer protection and financial activities’ mandate of reviewing and coordinating financial literacy and education initiatives by the Competent Authorities
29 November 2019
The European Banking Authority (EBA) published today its annual Report on risks and vulnerabilities in the EU banking sector. The Report is accompanied by the publication of the 2019 EU-wide transparency exercise, which provides detailed information, in a comparable and accessible format, for 131 banks across the EU. Overall, EU banks’ solvency ratios remained stable, while the NPL ratio further contracted. Amidst low profitability, a proactive management of operating expenses is essential.
Overview of key figures
CET1 ratio (transitional)
CET1 ratio (fully loaded)
Leverage ratio (fully phased-in)
EU banks assets rose by 3 % between June 2018 and June 2019. Since 2014, commercial real estate, small and medium-sized enterprise (SME) and consumer credit exposures have been the segments with the highest growth rates. This focus on riskier segments shows banks’ search for yield in an environment of low interest rates and shrinking margins.
Asset quality has continued to improve, although at a slower pace. The NPL ratio declined from 3.6 % in June 2018 to 3 % in 2019. However, the focus on riskier exposures over the past few years combined with a weakening macroeconomic outlook might change this trend. Responses to the EBA’s Risk Assessment Questionnaire (RAQ) also show that an increasing share of banks expect a deterioration of asset quality for most of the loan segments. These include portfolios, which they also aim to expand, like SME and consumer credit financing.
Funding conditions have improved, supported by benign financial markets. Banks should take advantage of the current low interest rate environment to build up their MREL buffers. With an increasing number of banks charging or planning to charge negative interest rates to corporate and household deposits, the effects of such measures on the deposit base remain to be seen.
After material progress over the past few years, capital ratios remained broadly unchanged year on year (YoY). As of June 2019, the CET1 ratio stood at 14.4 % (14.3 % in June 2018) on a fully loaded basis. A parallel increase in risk-weighted assets (RWAs) (2.5 % YoY) and CET1 (3 % YoY) was observed in the last year. Credit risk, which makes up 80 % of total RWA, has increased by roughly 2.5 %, which is lower than the growth in total assets (3 %) and total loans (3.5 %). Such developments indicate that credit RWAs are driven not only by trends in banks’ assets, but also by changes in the composition of banks’ exposures and risk parameters.
Profitability remains at low levels. The RoE for EU banks decreased slightly from 7.2 % to 7 % in 2019. The deteriorating macroeconomic environment along with low interest rates and intense competition not only from banks, but also from financial technology (FinTech) firms and other financial players, is expected to add further pressure to bank profitability. In this challenging environment, the streamlining of operating expenses is presumably the main area to improve profitability.
Technology risks and increasing money laundering/terrorist financing (ML/TF) cases maintain operational risk high. Cyberattacks and data breaches represent major concerns for banks. In addition, the occurrence of ML/TF scandals may imply corresponding legal and reputational costs.
28 November 2019
The European Banking Authority (EBA) published today its final Guidelines on ICT and security risk management. These Guidelines establish requirements for credit institutions, investment firms and payment service providers (PSPs) on the mitigation and management of their information and communication technology (ICT) and security risks and aim to ensure a consistent and robust approach across the Single market. These Guidelines will enter into force on 30 June 2020.
The increasing digitalisation in the financial sector and the growing interconnectedness across financial institutions and third parties make financial institutions’ operations vulnerable to internal and external ICT and security risks that can potentially compromise their viability. As a result, sound ICT and security risk management are key for a financial institution to achieve its strategic, corporate, operational and reputational objectives.
These Guidelines set out expectations on how all financial institutions should manage internal and external ICT and security risks that they are exposed to. This guidance also provide the financial institutions with a better understanding of supervisory expectations for the management of the said risks, covering sound internal governance, information security requirements, ICT operations, project and change management and business continuity management.
The Guidelines also cover the management of PSPs’ relationship with payment service users (PSUs) to ensure that users are made aware of the security risks linked to the payment services, and are provided with the tools to disable specific payment functionalities and monitor payment transactions.
The Guidelines are addressed to credit institutions and investment firms as defined in the Capital Requirements Directive (CRD), for all of their activities, and to PSPs subject to the revised Payment Services Directive (PSD2), for their payment services.
These Guidelines build on the provisions of Article 74 of Directive 2013/36/EU (CRD) that mandate the EBA to further harmonise financial institutions' governance arrangements, processes and mechanisms across the EU regarding internal governance, and derive from the mandate to issue guidelines in Article 95(3) of Directive (EU) 2015/2366 (PSD2) with regard to the establishment, implementation and monitoring of security measures for operational and security risks.
These Guidelines respond to the European Commission's FinTech Action plan request for the EBA to develop guidelines on ICT risk management and mitigation requirements in the EU financial sector.
The EBA Guidelines will enter into force on 30 June 2020. The Guidelines on security measures for operational and security risks under PSD2 (EBA GL/2017/17) issued in 2017 have been fully integrated into these Guidelines and will be repealed once these Guidelines become applicable.
27 November 2019
The European Banking Authority (EBA) is organising on 27 and 28 November a research workshop on "The future of stress tests in the banking sector – approaches, governance and methodologies". The workshop brought together economists from national supervisory authorities and leading academics to discuss the future of stress testing in the banking sector and explore what measures could be taken by policy makers to best benefit from the exercise.
The EBA Chairperson José Manuel Campa opened the workshop by highlighting the importance of approaching the long-term discussion on the future of stress test “with an open mind and the commitment to consult widely the different stress test users before making any final decisions.”
The proceedings of the conference will be available on the EBA website under the relevant section.
22 November 2019
The draft ITS include proposals for templates and tables implementing the TLAC/MREL disclosure and reporting requirements. In addition to the draft ITS, the consultation paper includes two recommended reporting templates covering the forecast of MREL and TLAC positions and funding structures, and a file mapping disclosure and reporting requirements.
The integrated approach aims to optimise efficiency by institutions when complying with their disclosure and reporting obligations, to facilitate the use of information by authorities and market participants, and to promote market discipline. For this purpose:
This consultation paper is one of the deliverables presented in the EBA Roadmap on the risk reduction measures package, which explains the EBA Pillar 3 strategy to implement a comprehensive disclosure framework with the aim to become the EU-wide Pillar 3 hub and the EBA pathway for a more efficient and proportionate supervisory reporting.
Responses to the consultations can be sent to the EBA by clicking on the "send your comments" button on the consultation page.
All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 22 February 2020.
A public hearing on this consultation will take place at the EBA premises on 2 December from 10:00 to 12:00 Paris time (reporting templates) and from 14:00 to 16:00 Paris time (disclosure templates). Deadline for registration is 25 November 16:00 Paris time. Please note that those two public hearings cover all consultations on reporting and disclosure requirements respectively in the context of the banking package (CRR2, CRD5, BRRD2) that were launched by the EBA.
Legal basis and next steps
These draft ITS have been developed in accordance with:
The EBA expects to submit these revised draft ITS to the European Commission in June 2020.
21 November 2019
The European Banking Authority (EBA) launched today a public consultation on specific supervisory reporting requirements for market risk, which are the first elements of the Fundamental Review of the Trading Book (FRTB) introduced by the revised Capital Requirements Regulation (CRR2) in the prudential framework of the EU. The consultation runs until 7 January 2020.
This consultation paper includes proposals for a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the ‘Alternative Standardised Approach’ for market risk (MKR-ASA). This consultation paper is the first step to address the elements of the mandate of Article 430b CRR referring to the MKR-ASA. The reporting requirements on the new market risk framework will be gradually expanded over time.
Mindful of the importance of expanding the reporting requirements resulting from the FRTB in a proportionate manner, the EBA is taking a gradual approach as institutions will also continue to be subject to the current market risk framework and the associated reporting requirements.
This consultation paper is one of the deliverables presented in the EBA Roadmap on the risk reduction measures package, which includes the EBA’s strategy to implement the CRR2/CRD5, the BRRD2 and the IFR mandates in the reporting framework.
Responses to the consultations can be sent to the EBA by clicking on the following link.
All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 7 January 2020.
A public hearing will take place at the EBA premises on 2 December from 10:00 to 12:30. Please note that this public hearings covers all consultations on reporting in the context of the banking package (CRR2, CRD5, BRRD2) that were launched by the EBA, i.e. the consultation on the ITS on Reporting related to CRR2 and Backstop Regulation, the consultation on the ITS on disclosure and reporting on MREL and TLAC and the consultation on this ITS.
Legal basis and next steps
These draft ITS have been developed in accordance with Article 430b(6) of Regulation (EU) No 575/2013 which mandates the EBA to develop uniform reporting templates, definitions and instructions and specify the frequency, reference and remittance dates and the IT solutions for the reporting.
The EBA expects to submit these revised draft ITS to the European Commission in April 2020. The reporting requirements are envisaged to apply from March 2021, with the first reference date for reporting being the 31 March 2021. During the summer of 2020, the EBA will publish draft Data Point Models (DPM) on the proposed changes to supervisory reporting.
21 November 2019
The Risk Reduction Package allocates to the EBA more than 100 new mandates under the revised Capital Requirements Directive (CRD V), Capital Requirements Regulation (CRR II), Bank Recovery and Resolution Directive (BRRD II). Most of the mandates aim at completing and updating the Single Rulebook as well at monitoring regulatory practices within the Single Market to ensure the effective and consistent implementation of such rules.
In the area of governance, the EBA will contribute to optimising the existing framework with an emphasis on the finalisation of the remuneration deliverables. In the area of large exposures, the EBA’s priority will be to complete the framework where currently no EBA work exists, namely for determining exposures arising from derivatives. In the area of Pillar 2, the EBA will consider how to make the Pillar 2 framework fit for purpose in view of ongoing and new challenges. In particular, proportionality will be strengthened, and the anti-money laundering and counter-terrorist financing (AML/CTF) and sustainable finance dimensions will be clarified together with Pillar 2 capital add-ons. On resolution, the EBA’s work aims at facilitating effective resolution planning and preparedness, such as on MREL calibration and monitoring In the area of supervisory reporting, the EBA aims at achieving an efficient reporting framework with enhanced proportionality. Finally with its work on disclosure, the EBA aims to become the EU-wide Pillar 3 hub following the completion of the EUCLID project.
Note to the editors
The risk reduction measures package, which was proposed by the Commission in November 2016 and adopted by the Council of the EU and the European Parliament on 20 May 2019, represents an important step towards the completion of the European post-crisis regulatory reforms. The package is also a response to the June 2016 ECOFIN Council conclusions, which invited the Commission to put forward proposals to further reduce risks in the financial sector no later than by the end of 2016.
The banking package includes the elements of the Basel III framework already agreed at international level at the time of the Commission's proposal.