Banks too must play part in tackling crisis
With ‘CRR quick fix’, MEPs ease some Covid-19 bad effectsMaria Koleva , Brussels
Changes to EU rules on banks’ capital requirements to facilitate their ability to support households and businesses in the EU, were backed via remote vote by the EP Economic and Monetary Affairs Committee (ECON) on Tuesday. With 41 votes to 16 and 2 abstentions, MEPs adopted the report authored by Jonas Fernandez, (S&D, Spain) for temporarily amending the Capital Requirements Regulation (CRR) as to respond to the impact of the Covid-19 pandemic.
The so-called ‘CRR quick fix’ rules consist of temporary capital relief to enable banks to support credit flows to companies and households and absorb losses, mitigating the severe economic consequences of the Covid-19 pandemic and the imposed lockdown.
According to the changes there will be an extension by two years of the transitional arrangements for international accounting standard and further relief measures such as capital add back to ensure that banks can further provide credit to the real economy. MEPs foresee alignment of minimum coverage requirements for non-performing loans guaranteed by the public sector with those guaranteed by official export credit agencies.
Deferring application of the leverage ratio buffer, or the ratio between a bank’s capital and its exposures, by one year to January 2023, will further allow banks to increase the amount of funds they would be able to loan.
By adjusting rules with a pro-cyclical effect and empowering supervisors to react fast to highly volatile financial markets, we can cushion some of the negative economic effects of the Covid-19 pandemic, rapporteur Jonas Fernandez said. He also argued that bankers received bonuses, “while we were handed the bill - many people were left with this feeling after the financial crisis, when banks where bailed out with tax-payers’ money while continuing to paying shareholders dividends and their staff bonuses”. He added that banks too must play their full part in the recovery and in the real economy.
Furthermore, MEPs suggested advanced application of a more favourable prudential treatment of loans to pensioners or employees with a permanent contract that are backed by the borrower's pension or salary. The changes will as well ensure credit flow to SMEs and supporting infrastructure investments.
Banks will no longer be required to deduct certain software assets from their capital, supporting an accelerated digitalisation of the banking sector. Liquidity measures provided by central banks in a crisis context will be effectively channelled by banks to the economy, the ECON proposal reads.
MEPs agreed also to introduce a temporary prudential filter to calculate losses accumulated since 31 December 2019 and to neutralise their impact.