Members of the European Parliament (“MEPs“) have approved more flexibility in EU banks’ prudential rulebook to focus on lending to the Covid-19-stricken economy.
Aiming to strike a balance between a robust and stable banking system and securing much-needed credit for the EU economy, the plenary session approved a “quick fix” to the capital requirement regulation (“CRR“) to temporarily ensure favourable conditions for banks. The European Parliament (“EP“) says this will support credit flows to companies and households and absorb losses, mitigating the economic consequences of lockdown.
The adopted changes include:
- Deferred application of the leverage ratio buffer by one year to January 2023 to allow banks to increase the amount that they would be able to loan.
- Pensioners or employees with a permanent contract will be able to get a loan under more favourable prudential conditions. The loan will be backed by the borrower’s pension or salary.
- Advanced application of both the SME and infrastructure supporting factor, which allows for a more favourable prudential treatment of certain exposures, ensuring credit flows to SMEs and supporting investments in infrastructure.
- Banks will now be able to treat some software as their own capital, an exemption that will kick in earlier than planned. This could also encourage banks to invest in software and digitalisation.
- Liquidity measures provided by central banks in a crisis context will be effectively channelled by banks to the economy.
Further, to support funding options in non-euro member states fighting the consequences of Covid-19, MEPs reintroduced transitional arrangements for exposures to national governments and central banks denominated in a currency of another member state.
MEPs also agreed to introduce a temporary prudential filter to calculate unrealised losses on banks’ holdings of public debt.
The vote on the CRR quick fix was the final vote on the already agreed text. The changes will enter into force on the day following its publication in the Official Journal of the EU.