EBA publishes covered bond opinion: EBA has responded to requests by ESRB and the Commission for, respectively, best practice in the area of covered bonds and recommendations on the preferential risk weight applicable to them. It has issued an opinion supported by a report on covered bonds frameworks across Europe. The report deals with legal, regulatory, transparency and supervisory aspects, describes the relevant features of specific cover assets and includes analysis of cash flow sensitivity and asset encumbrance levels. EBA's recommendation to the Commission is that a preferential risk weight treatment is prudentially sound, but recommends introducing in CRR the following additional conditions for a covered bond to qualify for preferential treatment:

  • a minimum regulatory over-collateralisation level;
  • a requirement to mitigate liquidity risk by means of liquid assets;
  • a more detailed role for the competent authority; and
  • more detailed disclosure requirements. In particular, harmonising the disclosure to investor institutions.

The opinion also advises the Commission against the eligibility of loans secured by aircraft liens and of mortgage-backed securities (MBSs) backed by own-originated real estate loans. Residential loans secured by guarantee should be eligible subject to the appropriate capitalisation of the guarantor and the creation of a first lien mortgage on the properties in the event of default of the guarantor. The Commission has now to submit its final report to the European Parliament and the Council by the end of the year. (Source: EBA Supports Capital Treatment of Covered Bonds, but Calls for Additional Eligibility Criteria)

EBA finalises guidelines on business plans: In response to an ESRB recommendation EBA is introducing templates with harmonised definitions of the funding data credit institutions must report. This data will allow supervisors to assess the soundness of funding plans and their impact on the supply of credit. It will also help the work of colleges of supervisors. (Source: EBA Publishes Guidelines on Harmonised Definitions and Templates for Funding Plans of Credit Institutions)

EBA publishes lists for credit risk capital: EBA has published a series of lists that help the calculation of capital requirements for credit risk under CRR, namely:

  • a list of EU regional governments and local authorities treated as exposures to central governments;
  • a list of changes to risk weights or stricter criteria for exposures secured by immovable property;
  • a list of changes to minimum loan given default (LGD) for retail exposures secured by residential or commercial immovable property; and
  • a list of equity exposures that can be permanently treated according to the Standardised Approach by those institutions with permission to use the IRB approach.

Regarding the types of physical collateral that could meet the additional eligibility conditions for credit risk mitigation purposes under the IRB approach, EBA says that, currently, there is no such physical collateral that could be deemed to meet the conditions automatically. Instead, institutions must document the fulfilment of these conditions. (Source: Credit Risk - Other Publications)

EBA finalises guidelines on encumbered assets disclosure: EBA has finalised its guidelines on disclosure of encumbered and unencumbered assets. The guidelines provide three disclosure templates and a box for narrative information about the importance of encumbrance for an institution's individual funding model.  EBA has taken into consideration the existing disclosure requirements under the CRR and forthcoming implementing technical standards on supervisory reporting of asset encumbrance, as well as the existing disclosure requirements under the accounting framework. The guidelines complement rather than substitute these other disclosure requirements. (Source:  Guidelines on Disclosure of Encumbered and Unencumbered Assets)

EBA consults on CCB disclosure: EBA has opened a consultation on proposed regulatory technical standards (RTS) on institutions' disclosure of information related to the countercyclical capital buffer (CCB). The two templates proposed would harmonise disclosure of information on the geographical distribution of an institution's credit exposures and its specific CCB. The consultation is open until 27 September. (Source: EBA Consults on Standards on CCB Disclosure)

EBA consults on use of SA by IRB institutions: EBA is consulting, until 26 September, on RTS specifying the conditions of application of permanent and temporary uses of the standardised approach (SA) to capital calculations for institutions that are allowed to use the internal ratings-based (IRB) approach. The RTS define the maximum levels below which an institution may be allowed to permanently use the SA for certain exposures (to central governments and institutions), as well as qualitative criteria  for determining when it would be unduly burdensome to implement a rating system in respect of those exposures. They also define a minimum initial use of the IRB approach and qualitative criteria for assessing an application for a sequential roll-out of the IRB approach. A public hearing on the proposed RTS will be held on 8 September. (Source: RTS on Use of SA by IRB Institutions)

EBA reports on banking sector risks: EBA has published its fifth semi-annual report on risks and vulnerabilities of the EU banking sector. It welcomes recent capital raising in anticipation of the imminent EU-wide stress tests, but warns about redress costs and insufficient provisioning in face of deteriorating loan books. (Source: EBA Publishes Report on Risks and Vulnerabilities of the EU Banking Sector)