EBA final guidelines on capital measures for foreign currency lending

The European Banking Authority (EBA) has published its final guidelines on capital measures for foreign currency lending to unhedged borrowers under the supervisory review and evaluation process (SREP).

The guidelines which are addressed to EU national regulatory authorities, aim to harmonise supervisory practices in Member States for addressing the risk associated with FX lending to those borrowers that are considered unhedged (i.e. borrowers without a natural or financial hedge, meaning agents that are exposed to a currency mismatch). The guidelines specify the method to be used by EU national regulatory authorities when FX lending is deemed to be material, and also when capital measures are deemed to be an appropriate method of treating this risk. They provide guidance on both the supervisory review of FX lending governance arrangements, and on capital adequacy, in accordance with article 97 of the CRD IV Directive. The guidelines also recognise the use by EU national regulatory authorities of other supervisory measures, as outlined in article 104(1) of CRD IV Directive, that may be used to address this specific FX lending risk, if deemed appropriate.

The guidelines apply from 30 June 2014. EU national regulatory authorities must notify the EBA whether they comply or intend to comply with the guidelines, or give reasons for non-compliance, by 28 February 2014. Any EU national regulatory authority which fails to notify the EBA by this deadline will be considered to be non-compliant. Notifications will be published on the EBA’s website.

View Guidelines on capital measures for foreign currency lending to unhedged borrowers under the supervisory review and evaluation process, 20 December 2013

EBA updates single rulebook Q&As

The European Banking Authority has updated its questions and answers (Q&As) on the single rulebook which relate to the CRD IV package of reforms: the CRD IV Directive, the Capital Requirements Regulation and the related technical standards and guidelines. The updated Q&As provide answers to the following questions:

  • Question ID: 2013_185: Firm shorts covered by client longs;
  • Question ID: 2013_197: Level of application of the new FINREP framework;
  • Question ID: 2013_222: Article 416 - Reporting on liquid assets;
  • Question ID: 2013_245: Inclusion of incurred (IFRS) CVA in the IRB provision shortfall calculation;
  • Question ID: 2013_249: Meaning of article 79 (b) of the CRD IV Directive;
  • Question ID: 2013_47: Treatment of non-grandfathered amount of bonds; and
  • Question ID: 2013_175: Possibility to increase the frequency of reporting with regard to information covered by draft implementing technical standards on supervisory reporting.

View Question ID: 2013_185: Firm shorts covered by client longs, 20 December 2013

View Question ID: 2013_197: Level of application of the new FINREP framework, 20 December 2013

View Question ID: 2013_222: Article 416 - reporting on liquid assets, 20 December 2013

View Question ID: 2013_245: Inclusion of incurred (IFRS) CVA in the IRB provision shortfall calculation, 20 December 2013

View Question ID: 2013_249: Meaning of Article 79 (b) of Directive 2013/36/EU (CRD), 20 December 2013

View Question ID: 2013_47: Treatment of non-grandfathered amount of bonds, 20 December 2013

View Question ID: 2013_175: Possibility to increase the frequency of reporting with regard to information covered by draft ITS on supervisory reporting, 20 December 2013

EBA consults on guidelines on disclosure of encumbered and unencumbered assets

Article 443 of the Capital Requirements Regulation (CRR) mandates the European Banking Authority (EBA) to develop guidelines on unencumbered assets taking into account the European Systemic Risk Board (ESRB) Recommendation of 20 December 2012 on funding of credit institutions.

The mandate in article 443 of the CRR refers to unencumbered assets, whereas the  ESRB Recommendation also refers to encumbered assets.

The EBA has now published a Consultation Paper setting out draft guidelines that, when finalised, will cover both encumbered and unencumbered assets in line with the ESRB Recommendation and the requirements in the CRR.

The deadline for responses on the Consultation Paper is 20 March 2014. The guidelines will be reviewed after one year and will form the basis of the binding technical standards on a more extensive disclosure framework that the EBA will develop by 2016.

View Consultation Paper: Draft guidelines on disclosure of encumbered and unencumbered assets, 20 December 2013

View Annex I - AE disclosure templates, 20 December 2013

EBA reports on definition and operational requirements for liquid assets and on impact assessment for liquidity measures

The European Banking Authority (EBA) has published the following reports for the European Commission as required by the Capital Requirements Regulation (CRR), namely:

  • a report on appropriate uniform definitions of extremely high quality liquid assets (extremely HQLA) and high quality liquid assets (HQLA) and on operational requirements for liquid assets required by articles 509(3) and (5) of the CRR. The liquidity coverage ratio (LCR), which will be introduced through a delegated act made under the CRR, is intended to promote the short-term resilience of a bank's liquidity risk profile by ensuring that it has sufficient HQLA to survive a significant stress scenario lasting for one month. In the report, the EBA sets out its recommendations on those assets that should qualify as HQLA (including residential mortgage backed securities, corporate bonds, equities and bonds) and those that should qualify as extremely HQLA (including EEA sovereigns, EEA central banks and supranational institutions); and
  • a report on impact assessment for liquidity measures required by article 509(1) of the CRR. The EBA concludes that a specification of the general liquidity requirement is not likely to have a material detrimental impact on the stability and orderly functioning of financial markets or on the economy and the stability of the supply of bank lending. However, it proposes specific derogations for certain business models under stringent and objective conditions. It also concludes that the calibration of the LCR as defined by the Basel Committee on Banking Supervision is generally appropriate across the EU.

The EBA was required to produce these reports by 31 December 2013. These results will assist the Commission in preparing a delegated act specifying detailed measures for the LCR, which it is required to adopt by 30 June 2014.

View EBA publishes reports on liquidity, 20 December 2013

View Report on appropriate uniform definitions of extremely high quality liquid assets and high quality liquid assets and on operational requirements for liquid assets under article 509(3) and (5) CRR, 20 December 2013

View Report on impact assessment for liquidity measures under article 509(1) of the CRR, 20 December 2013

EBA final draft RTS on methods for identifying geographical location of relevant credit exposures under CRD IV

The European Banking Authority (EBA) has published final draft regulatory technical standards (RTS) on the method for the identification of the geographical location of relevant credit exposures. The purpose of the draft RTS is to ensure a consistent EU wide implementation of the countercyclical buffer to protect against excess credit growth.

The countercyclical buffer was introduced by the CRD IV reforms so that national authorities could protect the banking system against potential losses when excess credit growth is associated with an increase in system wide risk.

In order to establish their exact institution-specific buffer rate, banks with relevant exposures to different jurisdictions have to assess the proportion of their exposures in each jurisdiction and identify the geographical location of their relevant credit exposures. The draft RTS specify in detail how the geographical location of credit, trading and securisation exposures will be determined.

The draft RTS also include proportionality and materiality considerations for institutions with limited foreign exposures. This is intended to alleviate the regulatory burden for smaller institutions, which tend to have more limited foreign trading activity.

View Final draft regulatory technical standards on the method for the identification of the geographical location of the relevant credit exposures under article 140(7) of the Capital Requirements Directive, 20 December 2013

EBA consults on guidelines on harmonised definitions and templates for funding plans of credit institutions

The European Banking Authority (EBA) has published a Consultation Paper on harmonised definitions and templates for funding plans of credit institutions. These harmonised definitions and templates are intended to assist EU national regulatory authorities when assessing the feasibility of funding plans and their impact on the supply of credit to the real economy. They are also intended to enable the EBA to discharge its duty to co-ordinate the assessment of funding plans at EU level and assess the viability of such plans for the EU banking system. Additionally, Annex 1 to the Consultation Paper contains funding plan templates in the format of excel spreadsheets.

The deadline for responses to the Consultation Paper is 20 March 2014.

View Consultation Paper on draft guidelines on harmonised definitions and templates for funding plans of credit institutions under ESRB Recommendation 2012/02 A.4, 20 December 2013

View Annex 1 - Guidelines on funding plan templates, 20 December 2013

View Consultation on draft guidelines proposing harmonised definitions and templates for funding plans of credit institutions (EBA/CP/2013/47), 20 December 2013

EBA technical advice on possible treatments of unrealised gains measured at fair value

Article 35 of the Capital Requirements Regulation (CRR) states that institutions shall not make adjustments to remove from their own funds unrealised gains or losses on their assets or liabilities measured at fair value. Article 80(4) of the CRR requires the European Banking Authority (EBA) to provide technical advice to the European Commission on possible treatments of unrealised gains measured at fair value other than including them in common equity tier 1 (CET1).

The EBA published a Discussion Paper on 2 August 2013 in which it set out its preliminary views on possible treatments of unrealised gains and gathered stakeholders’ comments. The EBA has now published its technical advice to the Commission.

In its technical advice, the EBA discusses prudential concerns about unrealised gains which, in particular, include that they may not be immediately available to absorb losses as they can disappear as a result of negative movements in market prices. The technical advice also enumerates other criteria that should be considered when deciding on the appropriate policy option. Such criteria include the interaction of unrealised gains with the liquidity framework and capital requirements. The technical advice also takes into account the interaction between prudential requirements and accounting rules in developing policy options. In this regard, the EBA proposes to distinguish between the banking and the trading book in its analysis of the different policy options as this distinction will take into account the different capital requirements that apply for the banking book and the trading book. The technical advice also provides an analysis of the interaction of a prudential filter with the current IAS 39 requirements for hedge accounting and for the fair value option.

View Technical advice to the Commission  on possible treatments of unrealised gains measured at fair value under article 80 of the Capital Requirements Regulation,19 December 2013

EBA Discussion Paper on draft methodology for assessment of liquidity and funding risk under SREP

The European Banking Authority (EBA) has published a Discussion Paper on a draft methodology for the assessment of liquidity and funding risk under the supervisory review and evaluation process (SREP).

The Discussion Paper sets out the EBA's current plans for the common methodology and process for assessing liquidity and funding risk that will form part of the overall SREP guidelines. The aim is to provide supervisors with a common understanding of the elements to be assessed and the criteria to be used in this assessment. The draft methodology will be further revised to embed it into the overall framework of the SREP guidelines and the single supervisory handbook and to ensure consistency with the wording of the SREP guidelines.

The deadline for responses to the Discussion Paper is 28 February 2014. The EBA also intends to publish a Consultation Paper on the SREP guidelines.

View Discussion Paper: Draft methodology for assessment of liquidity and funding risk under SREP, 19 December 2013

EBA final draft ITS on supervisory disclosure under CRD IV

The European Banking Authority (EBA) has published final draft implementing technical standards (ITS) with accompanying annexes on the format, structure, contents list and annual publication date of the supervisory information to be disclosed by EU national regulatory authorities under article 143(1) of the CRD IV Directive.

The final draft ITS templates, which should be completed by EU national regulatory authorities as of 31 December each year and published by the following 31 July, cover the following:

  • disclosing texts of laws, regulations, administrative rules and general guidance adopted in Member States relating to prudential regulation;
  • providing information on how EU national regulatory authorities will exercise options and discretions available in EU law;
  • publishing information on the general criteria and methodologies used for supervisory review and evaluation process; and
  • disclosing aggregate statistical data on key aspects of the implementation of the prudential framework.

The EBA has now submitted these final draft ITS to the European Commission for adoption in the form of an EU Regulation.

View EBA final draft implementing technical standards on the format, structure, contents list and annual publication date of the supervisory information to be disclosed by competent authorities under article 143(1) of Directive 2013/36/EU, 19 December 2013

View EBA publishes final draft technical standards on supervisory disclosure, 19 December 2013

EBA final draft ITS on hypothetical capital of a CCP under the CRR and EMIR

The European Banking Authority (EBA) has published final draft implementing technical standards (ITS), on the hypothetical capital of a central counterparty (CCP) under articles 50a, 50c and 89(5a) of the European Market Infrastructure Regulation (EMIR), as amended by article 520 of the Capital Requirements Regulation. These final draft ITS specify:

  • the frequency and the template for the information that a CCP has to deliver to all the credit institutions and investment firms that are clearing members, as well as to the EU national regulatory authorities;
  • two stress situations under which, following the default of one of the members, EU national regulatory authorities may set higher frequency of reporting; and
  • an initial phase-in period intended to mitigate the most demanding aspects of these provisions during the first year of implementation.

View EBA final draft implementing technical standards on the hypothetical capital of a central counterparty under articles 50a, 50c and 89(5a) of Regulation (EU) No 648/2012, as amended by Article 520 of Regulation (EU) No 575/2013, 19 December 2013

View EBA publishes final draft technical standards on the reporting of the hypothetical capital of a central counterparty, 19 December 2013

EBA final draft technical standards on market risk and CVA risk

The European Banking Authority (EBA) has published the following:

  • final draft regulatory technical standards (RTS) on the definition of market under article 341(3) of the Capital Requirements Regulation (CRR). The RTS relate to the definition of the term "market" to be applied for the calculation of the overall net position in equity instruments under the market risk standardised rules. The definition of market is based on a currency criterion, but solely for jurisdictions included in the eurozone. For other jurisdictions, market is defined using a nationality criterion;
  • final draft RTS on credit valuation adjustment risk (CVA risk) for the determination of a proxy spread and the specification of a limited number of smaller portfolios under article 383(7) of the CRR. The RTS specify the data quality requirements and the minimum granularity of the attributes of rating, industry and region that institutions should consider when estimating an appropriate proxy spread for the determination of the own funds requirements for CVA. The RTS also specify the number and size of portfolios that meet the criterion of a limited number of smaller portfolios and, therefore, are allowed into the CVA advanced approach despite not forming part of the scope of the internal model method for counterparty credit risk; and
  • an opinion on CVA risk for the determination of a proxy spread. The opinion supplements the RTS on CVA risk and elaborates on the approach taken by the EBA in determining a proxy spread.

View EBA final draft regulatory technical standards on the definition of market under article 341(3) of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR), 20 December 2013

View EBA final draft regulatory technical standards on credit valuation adjustment risk for the determination of a proxy spread and the specification of a limited number of smaller portfolios under Article 383(7) of Regulation (EU) No 575/2013, 20 December 2013

View Opinion of the European Banking Authority on credit valuation adjustment risk for the determination of a proxy spread, 20 December 2013

PRA update on CRR permissions and waivers

The PRA has updated the following two web pages with details about permissions and waivers under the Capital Requirements Regulation (CRR):

  • waivers and modifications web page. This web page explains that the PRA has the power to exercise various national discretions under the applicable articles of the CRR (known as CRR permission). The PRA will assess individual applications on a case by case basis against the relevant criteria set out in the applicable CRR article or reference and, where applicable, PRA rules and supervisory statements. In assessing applications, the PRA will also have regard to its statutory duty to promote the safety and soundness of PRA-authorised persons. Where the PRA decides that the conditions for a CRR permission are met, the PRA will issue a written notice to the applicant; and
  • CRR permission written notice web page. This web page explains that the PRA will publish details of all CRR permission written notices it approves unless it considers it inappropriate or unnecessary to do so.

View Waivers & CRR permissions, 23 December 2013

View Waivers & CRR permissions - Publication of waivers and CRR permission written notice, 23 December 2013