EBA provides additional clarity on the implementation of selected COVID-19 policies

The European Banking Authority (EBA) published today additional clarifications on the application of the prudential framework in response to issues raised as a consequence of the COVID-19 pandemic. These clarifications update the FAQ section of the EBA Report on COVID-19 implementation policies published on 7 August. They mainly cover the EBA Guidelines on moratoria and COVID-19 reporting, operational risk, downturn LGD estimation and the credit risk mitigation framework. This Report is part of the EBA’s wider monitoring of the implementation of COVID-19 policies as well as of the application of existing policies under these exceptional circumstances.

The Report includes additional clarifications on the application of the Guidelines on moratoria and on COVID-19 reporting and disclosure, as well as on the operational risk taxonomy to be used in light of COVID-19. Two new sections have been added, which provide further details on the likely identification of a COVID-19-triggered downturn period and its incorporation into downturn LGD estimation, and clarifications on the treatment of the COVID-19 public guarantee schemes as a form of credit risk mitigation under the A-IRB approach.

As additional policy issues are likely to arise in the context of the EBA’s monitoring of the implementation of COVID-19 policies, the EBA expects to update the Report at a later stage.