European Commission adopts banking package to boost lending

The aim of this package is to ensure that banks can continue to lend money to support the economy and help mitigate the significant economic impact of the Coronavirus. It includes an Interpretative Communication on the EU's accounting and prudential frameworks, as well as targeted “quick fix” amendments to EU banking rules.

During the last crisis, we had to prop up banks. This time, we are helping banks to prop up households and companies. They need to keep the liquidity taps turned on

, commented Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People. 

The Commission stressed that the EU's response to this crisis must be coordinated in order to avoid national fragmentation and to ensure a level playing field.

The regulation adopted on Tuesday also implements some targeted changes to maximise the capacity of credit institutions to lend and to absorb losses related to the Coronavirus pandemic, while still ensuring their continued resilience.

Dombrovskis said the goal of the package is to facilitate bank lending to support the real economy, and that it is based on a three-pronged strategy:

1. encouraging banks to make full use of the flexibility within the EU's prudential and accounting rules;
2. providing further capital relief for banks to support lending to the economy
3. encouraging the financial sector to develop best practices to support businesses and households.

Targeted amendments to banking rules

The Commission proposed a few targeted “quick fix” amendments to the EU's banking prudential rules (the Capital Requirements Regulation) in order to maximise the ability of banks to lend and absorb losses related to Coronavirus.

The Commission proposes exceptional temporary measures to alleviate the immediate impact of Coronavirus-related developments, by adapting the timeline of the application of international accounting standards on banks' capital, by treating more favourably public guarantees granted during this crisis, by postponing the date of application of the leverage ratio buffer and by modifying the way of excluding certain exposures from the calculation of the leverage ratio. The date for applying the leverage ratio buffer requirement will be deferred by one year to 1 January 2023.

The Commission also proposes to advance the date of application of several agreed measures that incentivise banks to finance employees, SMEs and infrastructure projects.

Interpretative Communication

The EC's communication confirms the recent statements on using flexibility within accounting and prudential rules, such as those made by the Basel Committee of Banking Supervision, the European Banking Authority (EBA) and the European Central Bank, amongst others.

Dombrovskis mentioned the following examples for flexibility:

• Banks are not expected to apply accounting rules mechanically when setting aside capital for expected losses on their loans. This is justified in an exceptional situation such as the coronavirus crisis.
• Banks should not automatically account for a significant rise in credit risk simply because loans are subject to private or statutory moratoria.
• A bank does not have automatically consider a borrower in default when he or she calls on a guarantee.

The Commission encourages banks and supervisory authorities to make use of the flexibility in the EU's accounting and prudential frameworks. For example, the Communication confirms – and welcomes – the flexibility available in EU rules when it comes to public and private moratoria on loan repayments (EBA guidelines of 2 April).

The Communication also highlights areas where banks are invited to act responsibly, for example by refraining from making dividend distributions to shareholders or adopting a conservative approach to the payment of variable remuneration.

The Communication also recalls how banks can help businesses and citizens through digital services, including contactless and digital payments.

A testület szerint az uniós banki prudenciális szabályok (a tőkekövetelményekről szóló rendelet) néhány célzott, „gyors megoldásra” irányuló módosítása azt a célt szolgálja, hogy a bankok a lehető legnagyobb mértékben képesek legyenek a hitelezésre és a koronavírus okozta veszteségek elnyelésére. 

Cover photo: Getty Images