18 June 2020
The European Banking Authority (EBA) has decided today to extend the application date of its Guidelines on legislative and non-legislative moratoria to 30 September 2020. With EU economies not yet fully opened, this extension shows the importance of a continued support to the measures taken by banks to extend loans in response to the extraordinary nature of the current situation. This extension would ensure that adequate treatment for borrowers is available across the EU, considering that the Covid-19 crisis has been affecting EU countries in a different way and at a different pace.
Acknowledging the crucial role played by banks in providing financing to European businesses and citizens during the ongoing COVID-19 pandemic, the EBA has decided to legally extend the application date of the Guidelines by three months. In granting this extension, the EBA is highly aware of the trade-off faced in making the extension, as persistent liquidity shortages under the current circumstances may develop into solvency issues that need to be properly assessed by banks on a case-by-case basis. .
In addition, the EBA highlights that the implementation timeline envisaged in the EBA’s IRB roadmap to repair internal models remains overall unchanged. The EBA, nonetheless, also recognises that there may be institution-specific circumstances requiring more flexibility. Consequently, the EBA notes that supervisors may want to use their supervisory discretion in line with Article 146 of the Capital Requirements Regulation (CRR).
The COVID-19 pandemic has raised a significant number of policy challenges, both at the EU and national level. One of the main decisive EBA actions to apply the flexibility embedded in the regulatory framework, was the publication of the Guidelines on legislative and non-legislative moratoria on loan repayments (EBA/GL/2020/02, GLs on moratoria) on the 2 April 2020. This ensured that banks, while maintaining comparable metrics, would also be able to grant payment holidays to customers, under either legislative or non-legislative moratoria.
17 June 2020
The European Banking Authority (EBA) published today its first peer review of stress tests and the resilience of Deposit Guarantee Scheme (DGSs). The purpose of the peer review was to assess the resilience of DGSs based on the results of the DGS stress tests, and to identify good practices and areas for improvement.
In the Report, the EBA assessed the results of 135 DGS stress tests performed by 32 DGSs from 27 EU Member States. The priority tests covered DGS’ operational and funding capabilities, credit institutions’ single customer view (SCV) files containing depositor information to prepare for a DGS payout, and cross-border cooperation between DGSs in case of cross-border branches.
The EBA concluded that such tests have become an established tool to prepare for DGS interventions. In addition, the EBA is of the view that using the grading system outlined in the Guidelines on stress tests of DGSs, the overall resilience of DGSs across the EU is ‘fair’, which is the second best result, after ‘optimal’. This means that the identified shortcomings are isolated and/or can easily be addressed by the DGSs at the point of failure, and are unlikely to affect the ability of DGSs to perform their tasks in line with the Deposit Guarantee Schemes Directive (DGSD). The Report also identified good practices that were deployed by a number of DGSs and which can be considered by the other DGSs.
The EBA also highlighted some shortcomings and provided early indications on how to improve and enhance the framework. In particular, the EBA found that the divergence in the type of exercises performed and in the way outcomes were reported, made it difficult for the EBA to compare the tests between DGSs, thus hampering the desired consistency. The EBA, therefore, provided early indications on how to enhance the comparability for future peer reviews. These early indications will also serve as input for any potential future revision of the EBA Guidelines on stress tests of DGSs.
While the peer review performed by the EBA is a regular exercise required by the DGSD, it also includes provisions stemming from the outbreak of the COVID-19 pandemic. More specifically, the Report outlines lessons learnt from a real-life payout case in one EU Member State that coincided with the pandemic. The Report also includes early indications of how to improve the framework by exploring how to incentivise DGSs to perform ‘special’ tests, which would allow them to assess scenarios with severe business continuity problems, such as a pandemic, power outages or significant operational disruptions.
The DGSD requires Member States to ensure that DGSs perform stress tests of their systems. In 2016, the EBA issued Guidelines on stress tests of DGSs that set out the scope, principle-based requirements and a list of four ‘priority tests’ that DGSs are required to perform and report on to the EBA by 3 July 2019, by means of a predefined reporting template. The DGSD, in turn, requires the EBA to use these reports to conduct a peer review of all DGSs across the EU, and to do so at least every five years.
11 June 2020
The European Banking Authority (EBA) published today its 2019 Annual Report, which provides a detailed account of all the work the Authority achieved in the past year and anticipates the key areas of focus in the coming year.
2019 was a year of significant changes for the EBA, starting with the appointment of José Manuel Campa as Chairperson, and the Authority’s relocation from London to Paris. Commenting on the EBA’s work in 2019, José Manuel Campa said: “I am very lucky to have inherited a strong, healthy and well established organisation. Thanks to its technical expertise, it has brought a unique contribution to strengthening the European banking sector, and ultimately serving the public interest.”
In 2019, in a response to the call received from the Commission, the EBA prepared its advice on the implementation of the Basel III framework in the EU. Throughout its advice, the EBA devoted particular attention to areas where specific European arrangements may exist, providing a detailed analysis of the impact of the reform by business models and bank size.
The EBA’s work also focused closely on the regulatory package on Risk Reduction Measures adopted by the Council of the EU and the European Parliament, for which the EBA has received a large number of mandates, which include large exposures, Pillar 2, supervisory reporting and disclosure, governance and remuneration, and resolution.
Providing transparency to the financial community on the status of the European banking industry remained a core priority in 2019. The EBA carried out its annual EU wide transparency exercise, which confirmed the stronger capital position of European banks and the steady decline in non-performing loans (NPLs). Another fundamental achievement in the transparency domain was the finalisation of EUCLID and the strengthening of the EBA’s role as an EU data hub for Competent Authorities.
Throughout 2019, the EBA continued its work to protect consumers and depositors and contributed to secure and convenient retail payments in the EU.
Financial innovation and digital finance were also at the core of the EBA’s activities. The Authority provided guidance to banks to strengthen governance in the areas of outsourcing to the cloud and ICT risk, and has advised the European Commission on cybersecurity and on the applicability and suitability of EU law to crypto-assets. The EBA also published its Action plan sustainable finance outlining its approach and timeline for delivering mandates related to environmental, social and governance (ESG) factors.
Finally, with the review of the EBA founding regulation, the EBA has been given new powers in the area of anti-money laundering (AML) to lead policy development, to coordinate and to monitor the efforts of national supervisors in order to strengthen AML practices across the single market.
08 June 2020
The European Banking Authority (EBA) published today the seventh EU-wide transparency exercise. This additional data disclosure comes as a response to the outbreak of COVID-19 and provides market participants with bank-level data as of 31 December 2019, prior to the start of the crisis. The data confirms the EU banking sector entered the crisis with solid capital positions and improved asset quality, but also shows the significant dispersion across banks.
Commenting on the publication of the results, Jose Manuel Campa, EBA Chairperson, said: “The EBA considers that the provision to market participants of continuous information on banks’ exposures and asset quality is crucial, particularly in moments of increased uncertainty. The dissemination of banks’ data complements our ongoing monitoring of the risks and vulnerabilities in the banking sector and contributes to preserving financial stability in the Single Market”.
In the context of an unprecedented health crisis, EU-wide Transparency data confirms banks entered this challenging period in a stronger position than in previous crises in line with the EBA’s “Thematic note on the first insights into the Covid-19 impacts”. Compared with the Global Financial Crisis in 2008-2009, banks now hold larger capital and liquidity buffers.
EU banks reported increasing capital ratios in 2019. The EU weighted average CET1 fully loaded capital ratio was at 14.8% as of Q4 2019, around 40bps higher than Q3 2019. The trend was supported by higher capital, but also contracting risk exposure amounts (REA). As of December 2019, 75% of the banks reported a CET1 fully loaded capital ratio above 13.4% and all banks reported a ratio above 11%, well above the regulatory requirements. Compared to the previous quarter, the interquartile range remained stable.
The EU weighted fully phased-in leverage ratio stood at 5.5% as of December 2019. The leverage ratio increased by 30bps compared to the previous quarter, driven by rising capital and declining exposures. The lowest reported leverage ratio was 4.7% at country level, and 1.6% at bank level.
The asset quality of EU banks has been on an improving trend over the last few years. As of Q4 2019 the EU weighted average NPL ratio declined to 2.7%, 20bps lower than in Q3 2019. The Q4 2019 ratio was the lowest since the EBA introduced a harmonised definition of NPLs across European countries. Dispersion in the NPL ratio across countries remained wide, with few banks still reporting double-digit ratios, although in the last quarter the interquartile range compressed by 80 bps, to 3.1%.
04 June 2020
The European Banking Authority (EBA) outlined today its roadmap for the implementation of the new regulatory framework for investment firms and launched a public consultation on its first set of regulatory deliverables on prudential, reporting, disclosures and remuneration requirements. The roadmap outlines the EBA’s work plan for each of the mandates laid down in the IFR/IFD and clarifies the sequencing and rationale behind their prioritisation. Through these mandates, the EBA will contribute to the implementation of a regulatory framework that is calibrated to the size and nature of investment firms. This will strengthen supervision, which will rely more directly on the risks faced by the clients and the investment firms themselves. The consultations launched today run until 4 September 2020.
The first consultation paper on prudential requirements includes three draft Regulatory Technical Standards (RTS) on the reclassification of certain investment firms to credit institutions, five draft RTS on capital requirements for investment firms at solo level, and one draft RTS on the scope and methods of prudential consolidation for investment firms at group level.
The second consultation paper on reporting requirements and disclosures, includes draft Implementing Technical Standards (ITS) on the levels of capital, concentration risk, liquidity, the level of activities as well as disclosure of own funds; and draft RTS specifying the information that investment firms have to provide in order to enable the monitoring of the thresholds that determine whether an investment firm has to apply for authorisation as credit institution.
The third and fourth consultation papers on remuneration requirements include one draft RTS on the criteria to identify all categories of staff whose professional activities have a material impact on the firm’s risk profile or assets it manages (‘risk takers’); and one draft RTS specifying the classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration of risk takers.
When developing these RTS and ITS, the EBA has considered the proportionality principle so as to take into account the specificities of the different classes of investment firms.
Finally, to assess the impact of the provisions proposed in the regulatory deliverables, the EBA also launched a data collection exercise on a voluntary basis.
Comments to these consultations can be sent to the EBA by clicking on the ‘send your comments’ button on the consultation page. Please note that the deadline for the submission of comments is 4 September 2020.
All contributions received will be published following the closure of the consultation, unless specifically requested otherwise.
The EBA will hold a public hearing, which will take place via conference call on the following dates:
The dial in details will be communicated in due course.
The EBA has developed these draft RTS and ITS according to Article 8a(6)(a), Article 8a(6)(b) of the CRD and in Article 7(5), Article 13(4), Article 15(5)(a), Article 15(5)(b), Article 15(5)(c), Article 23(3), Article 49, Article 54, Article 55(5) of the Regulation (EU) 2019/2033 and Article 5(6), Article 30(4), Article 32(1)(j) of the Directive (EU) 2019/2034, which mandate the Authority to further specify, develop, determine a prudential framework for investment firms to ensure a level playing field among investment firms across the EU and supervisory convergence.
The Investment Firms Prudential Package consists of the Directive (EU) 2019/2034 and the Regulation (EU) 2019/2033, which were published in the Official Journal on 5 December 2019 and represents a new prudential framework for investment firms authorised under MIFID.
The mandates allocated to the EBA includes 18 draft RTS, 3 draft ITS, 6 sets of guidelines, 2 reports, the requirement for the EBA to maintain a list of capital instruments and a database of administrative sanctions, and a number of notifications in various areas.
04 June 2020
The European Banking Authority (EBA) published today an Opinion on obstacles to the provision of third party provider services (TPPs) under the Regulatory Technical Standards (RTS) on strong customer authentication (SCA) and common and secure communication (CSC). The Opinion aims to support the objectives of the revised Payment Services Directive (PSD2) of enabling customers to use new and innovative payment services offered by TPPs by addressing a number of issues regarding the interfaces provided by account servicing payment service providers (ASPSPs) to TPPs.
Today’s Opinion clarifies when mandatory redirection is an obstacle to the provision of TPPs’ services and the authentication procedures that ASPSPs’ interfaces are required to support. The Opinion also provides clarifications on a number of obstacles identified in the market, including requiring multiple SCAs, the manual entry of the IBAN in the ASPSPs’ domain, or imposing additional checks of the consent given by the customer to the TPP. The Opinion also explains that requiring re-authentication every 90 days for account information services in accordance with the RTS on SCA&CSC is not an obstacle.
With this Opinion, EBA expects that Competent Authorities (CAs) take the necessary actions to ensure compliance of the interfaces offered by ASPSPs with the PSD2 and the RTS and, where obstacles are identified, to ensure that ASPSPs remove them within the shortest possible time. The EBA will monitor the way in which the clarifications provided in this Opinion are taken into account. Where the EBA identifies inconsistencies, despite the clarifications provided in this Opinion, it will take the actions needed to remedy them.
PSD2 entered into force on 13 January 2016 and applies since 13 January 2018. The Directive enables payment service users to use account information services and payment initiation services offered by TPPs, and requires ASPSPs to establish the access interfaces through which TPPs can access the customers’ payment accounts in a secure manner.
Article 32(3) of RTS on SCA &CSC requires ASPSPs that have implemented a dedicated interface to ensure that the interface does not create obstacles to the provision of payment initiation and account information services. With today’s Opinion, the EBA responds to requests for clarification as to whether certain market practices constitute such obstacles.
The EBA issued the Opinion in accordance with Article 29(1)(a) of its Founding Regulation, which mandates the Authority to play an active role in building a common Union supervisory culture and consistent supervisory practices, as well as in ensuring uniform procedures and consistent approaches throughout the Union.
02 June 2020
The European Banking Authority (EBA) published today its Guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis. These Guidelines follow the implementation of a broad range of measures, such as legislative moratoria on loan repayments and public guarantees in Member States, with the aim to support the operational and liquidity challenges faced by borrowers. The Guidelines have been developed to address data gaps associated with such measures to ensure an appropriate understanding of institutions’ risk profile and the asset quality on their balance sheets both for supervisors and the wider public.
Since the outbreak of the COVID-19 crisis, national governments and EU bodies have taken measures to address and mitigate the adverse systemic economic impact of the pandemic on the EU banking sector. In particular, the EBA is engaged in an effort to provide clarity to institutions on the application of prudential and supervisory measures to support lending into the real economy.
In the context of the COVID-19 crisis, the measures introduced by authorities in the EU banking sector have created some data gaps in supervisory reporting and disclosure. Whilst the measures are designed to ensure support for EU citizens and business during the crisis, regulators and supervisory authorities still have a responsibility to ensure that information is available to monitor and understand any risks associated with banks’ activities.
These Guidelines cover information that is crucial for understanding the prudential soundness of individual institutions, without impacting their treatment of creditors under moratoria or public guarantees. The information requested here reflects the type of information that senior managements in institutions are asking for, and is key for understanding the overall financial stability in the EU.
To ensure efficiency, a coordinated EU approach in the collection of additional information is needed. That is why the EBA is introducing, on a temporary basis, additional reporting for the application of the payment moratoria, forbearance measures applied in response to COVID-19 to the existing loans and public guarantees to new lending in response to the COVID-19 pandemic. In the development of these reporting and disclosure templates, the EBA was particularly mindful of the need for proportionality that can take account of the size and complexity of the institutions, as well as of the specificities of the measures introduced in Member States, and institutions’ operational efficiency in current circumstances.
These additional reporting and disclosure requirements are expected to be time-limited as they are introduced strictly in the context of the COVID-19 pandemic.
The first reporting reference date and the disclosure reference date will be 30 June 2020. The reporting guidelines will be part of the version 2.10 reporting framework release that will be published in June 2020.
These Guidelines have been drafted in accordance with Article 16 of Regulation (EU) No 1093/2010 (EBA Founding Regulation), which mandates the Authority to issue guidelines addressed to all competent authorities or all financial institutions and issue recommendations to one or more competent authorities or to one or more financial institutions, with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
29 May 2020
The European Banking Authority (EBA) published today its Report on convergence of supervisory practices in 2019. Overall, the Report finds that the key topics for supervisory attention identified in the EBA 2019 convergence plan have been largely implemented in supervisory work across the EU. The Report is part of the EBA’s work to actively foster and promote supervisory convergence across the Union in order to bring about strong supervisory standards and a common supervisory culture.
One of the core elements covered in this Report is the practical application of the Single Rulebook by competent authorities (CAs) in their supervisory activities. The Report also provides an update on the policy developments and training activities supporting supervisory convergence. For the first time, the Report incorporates information on convergence in supervisory colleges that used to be included in a separate report in the past.
The Report finds that the four key topics for supervisory attention identified in the EBA 2019 convergence plan – internal governance, ICT risk and operational resilience, non-performing exposures, and benchmarking of internal models - have been largely implemented in supervisory work across the EU, although to different degrees. Areas that will require further attention include the formalisation of the ICT risk appetite and how it cascades down the organisation ICT risk governance and controls and the ongoing assessment of the individual and collective suitability of the members of the management bodies.
Supervisory colleges made considerable efforts in 2019 to conduct thorough group risk assessments, and the areas that received the most supervisory attention correspond to the key topics that the EBA put forward in its 2019 convergence plan.
The Report incorporates the 2020 convergence plan. The plan has identified five key topics for supervisory attention for 2020: ICT risk and operational resilience, loan origination standards, profitability, capital and liability management and money laundering and terrorism financing (ML/TF) risk and other conduct risk for prudential supervisors. These topics for supervisory attention for 2020 have become even more relevant in the context of this COVID-19 crisis. The plan makes reference to the significant supervisory efforts and resources that will be dedicated to monitoring the crisis preparedness of institutions in 2020 and further implications of COVID-19 on credit institutions` operations and financial soundness.
Article 107 of the Capital Requirements Directive (CRD) mandates the EBA to annually report to the European Parliament and the Council on the degree of convergence of the application of the Supervisory Review and Evaluation Process (SREP) and supervisory measures.
The EBA has a number of tools at its disposal to deliver on this mandate and to effectively promote supervisory convergence across the Union. The three main convergence tools of the EBA are i) the development of regulatory and policy products; ii) training and iii) monitoring and assessment. The Report builds around these convergence tools and explains how the EBA pursued supervisory convergence in 2019.
29 May 2020
The European Banking Authority (EBA) published today its Guidelines on loan origination and monitoring that expect institutions to develop robust and prudent standards to ensure newly originated loans are assessed properly. The Guidelines also aim to ensure that the institutions’ practices are aligned with consumer protection rules and respect fair treatment of consumers.
“For the first time in the EBA’s regulatory practice, these Guidelines bring together the prudential and consumer protection perspectives, which lies at the heart of sound and sustainable lending to consumers, SMEs and corporates. In the context of the COVID-19 pandemic institutions need to maintain good credit risk management and monitoring standards that is essential for supporting lending to the economy. To address the current circumstances the new Guidelines contain additional transition periods for recently renegotiated loans to help institutions better focusing on their immediate operational priorities”, said José Manuel Campa, the EBA Chairperson.
The Guidelines specify internal governance arrangements for the granting and monitoring of credit facilities throughout their lifecycle. In particular, the Guidelines clarify the credit decision-making processincluding the use of automated models, building on the requirements of the EBA Guidelines on internal governance.
The Guidelines set requirements for assessing the borrowers’ creditworthiness together with the handling of information and data for the purposes of such assessments. In these requirements, the Guidelines bring together the EBA’s prudential and consumer protection objectives.
The EBA has developed these Guidelines building on the existing national experiences, addressing shortcomings in institutions’ credit granting policies and practices highlighted by past experiences. At the same time, these Guidelines reflect recent supervisory priorities and policy developments related to credit granting, including environmental, social and governance factors, anti-money laundering and countering terrorist financing, and technology-based innovation.
The Guidelines will apply from 30 June 2021. However, institutions will benefit from a series of transitional arrangements: (1) the application of the guidelines to the already existing loans and advances that require renegotiation or contractual changes with the borrowers will apply from 30 June 2022, and (2) institutions will be allowed to address possible data gaps and adjust their monitoring frameworks and infrastructure until 30 June 2024. Notwithstanding the extended transition period, the EBA notes that all loan origination requires effective risk oversight and management.
The EBA also calls on competent authorities to exercise their judgement and be pragmatic and proportionate in monitoring the implementation of the Guidelines, taking into account the operational challenges and priorities institutions may have due to the COVID-19 pandemic, whilst facilitating the economic recovery efforts.
The EBA developed the Guidelines on loan origination and monitoring in accordance with the Article 16 of Regulation (EU) No 1093/2010 in response to the European Council Action Plan on tackling the high level of non-performing loans. The European Council, in its July 2017 Action Plan, invited the EBA to “issue detailed guidelines on banks’ loan origination, monitoring and internal governance which could in particular address issues such as transparency and borrower affordability assessment”.
These Guidelines specify the internal governance arrangements, processes and mechanisms, as laid down in Article 74(1) of Directive 2013/36/EU, requirements on credit and counterparty risk, as laid down in Article 79 of that directive, and requirements in relation to the creditworthiness assessment of the consumer, as laid down in Chapter 6 of Directive 2014/17/EU and Article 8 of Directive 2008/48/EC.
The Guidelines will replace the existing EBA Guidelines on creditworthiness assessments under the MCD (EBA/GL/2015/11), which the EBA issued in June 2015, and which will be repealed with the effect from the date of application on the Guidelines on loan origination and monitoring.
25 May 2020
The European Banking Authority (EBA) published today a preliminary assessment of the impact of COVID-19 on the EU banking sector. With the global economy facing unprecedented challenges, banks entered the health crisis with strong capital and liquidity buffers and managed the pressure on operational capacities activating their contingency plans. The crisis is expected to affect asset quality and, thus, profitability of banks going forward. Nonetheless, the capital accumulated by banks during the past years along with the capital relief provided by regulators amounts on average to 5p.p. above their overall capital requirements (OCR). This capital buffer should allow banks to withstand the potential credit risk losses derived from a sensitivity analysis based on the 2018 stress test.
Banks have entered the COVID-19 crisis more capitalised and with better liquidity compared to previous crises. In contrast to the Global Financial Crisis (GFC) in 2008-2009, banks now hold larger capital and liquidity buffers. The common equity tier 1 (CET1) ratio rose from 9% in 2009 to nearly 15% as of Q4 2019, including a management buffer above overall capital requirements and Pillar 2 Guidance (P2G) of on average about 3% of risk weighted assets (RWAs). In addition to the ample management buffers, the capital related measures put in place by EU regulators to mitigate the effects of the crisis will free up roughly 2% of RWAs. Similarly, prior to the pandemic outbreak, banks’ liquidity coverage ratios (LCR) were on average close to 150%, significantly above the regulatory minimum.
The COVID-19 crisis will have a negative impact on asset quality. As the crisis develops, banks are likely to face growing non-performing loan (NPL) volumes, which can reach levels similar to those recorded in the aftermath of the sovereign debt crisis. A sensitivity analysis based on the 2018 EBA stress test suggests credit risk losses could amount up to 3.8% of RWAs. Hence, the banking sector would on average count on enough capital to cover potential losses under the most severe credit risk shock while maintaining a buffer equivalent to 1.1p.p. of RWAs above their OCR. State-guarantees introduced in many jurisdictions might soften this impact while the EBA Guidelines on loan moratoria will avoid the automatic classification of affected exposures as forborne or defaulted. Nonetheless, banks should assure that proper risk assessment continues to be performed. The extent to which banks will be affected by the crisis is expected to differ widely, depending on how the crisis evolves, the starting capital level of each bank and the magnitude of their exposures to the most affected sectors. Competent authorities should address quickly any idiosyncratic weaknesses that could be exacerbated by the current crisis.
Banks have been using their liquidity buffers and are expected to continue using them in the coming months. Since February 2020, funding market conditions have significantly deteriorated, with spreads widening substantially and new unsecured debt issuances almost coming to a halt until mid-April. Under these circumstances, banks have increased significantly their reliance on central bank funding. Banks are also expected to make some use of their ample liquidity buffers in the months to come.
Banks’ operational resilience is under pressure. Following the outbreak of the pandemic, banks have activated their contingency plans, which have allowed them to keep their core functions broadly unaffected. However, the handling of large volumes of applications for debt moratoria and guaranteed loans, and the insufficient preparation of some offshore units to work remotely added some pressure on their operational capacities.