EBA provides clarity on the implementation of the prudential framework in the context of COVID-19

The European Banking Authority (EBA) published today a Report, which provides clarifications on the application of the prudential framework that have been raised as a consequence of the COVID-19 pandemics. 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 EBA has already taken a substantial number of measures, which aimed at providing operational relief to institution within the current prudential framework. These include the publication, on 2 April 2020, of Guidelines on legislative and non-legislative moratoria on loan repayments, which encouraged institutions to grant payment holidays to customers.

However, a significant number of issues have been brought to the attention of the EBA, both in the context of the Guidelines on payment moratoria, but also more broadly in relation to the prudential framework. The Report provides clarity on the implementation of the Guidelines by addressing a number of interpretative questions and presents an overview of the general payment moratoria in place in the EU based on notifications sent to the EBA.

In addition, the Report also includes considerations on the COVID-19 issues, which can arise in applying the operational risk framework. The report sets out common criteria that aim at providing clarity on the supervisory and regulatory expectations regarding the treatment of COVID-19 operational risk losses in the capital requirement calculations. The Report also encourages credit institutions to collect information on data losses, even when these are not expected to be part of the setting of capital requirements.

As a significant number of policy issues have arisen and will continue 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.