Banking and Finance

Issue 1141 / 6 January 2022

Council of the European Union

CRR and BRRD - Council of EU agrees negotiating mandate on proposed amending Regulation - 22 December 2021

The Council of the EU (the Council) has announced that its members have agreed a mandate to negotiate with the European Parliament on the proposed Regulation amending the Capital Requirements Regulation ((EU) 575/2013) (CRR) and the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD), referred to as the ‘Daisy Chain proposal’.

The proposal was adopted by the European Commission in October 2021 as part of a package of banking reform proposals and focuses on the prudential treatment of global systemically important institution (G-SII) groups with a multiple point of entry (MPE) resolution strategy and a methodology for the indirect subscription for instruments eligible for meeting the minimum requirement for own funds and eligible liabilities (MREL). The Council has published the compromise text alongside a press release, attached to a Council note (15061/1/2 REV 1).

The Daisy Chain proposal amends the EU bank resolution framework by:

  • incorporating dedicated treatment for the indirect subscription for instruments eligible for internal MREL;
  • further aligning the treatment of G-SII groups with an MPE resolution strategy with the treatment outlined in the FSB's international total loss-absorbing capacity (TLAC) term sheet; and
  • clarifying the eligibility of instruments in the context of internal TLAC.

The approval of the Council's negotiating mandate will allow the incoming Presidency to launch discussions with the Parliament with a view to agreeing on a final text.

Press release

Council note

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU) No 575/2013 and Directive 2014/59/EU as regards the prudential treatment of global systemically important institution groups with a multiple point of entry resolution strategy and a methodology for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities

European Banking Authority

CRR - EBA publishes Report on liquidity measures - 17 December 2021

The European Banking Authority (EBA) has published a Report (EBA/Rep/2021/39) on liquidity measures under Article 590(1) of the Capital Requirements Regulation (575/2013/EU) (CRR). The Report monitors a sample of EU banks’ short-term liquidity risk profiles and provides an update on their compliance with the liquidity coverage ratio (LCR).

The Report finds that EU banks’ compliance with the LCR has steadily improved since data first became available in September 2016. There was a significant increase in the LCR in H2 2020 as the banks’ holdings of high-quality liquid assets were offset by the growth of net liquidity outflows. The LCR of EU banks stood at 176% at the end of June 2021, materially above the minimum threshold of 100%, and only one bank in the sample had an LCR level below 100% at that point.

The Report also includes an analysis of potential currency mismatches in LCR levels, indicating that EU banks tend to hold materially lower liquidity buffers in some foreign currencies, particularly USD and GBP. The activation of foreign exchange swap lines have also partially alleviated stress in the foreign exchange funding market, despite average LCR levels in foreign currencies showing some signs of deterioration.

EBA Report on liquidity measures under Article 509(1) of the CRR (EBA/Rep/2021/39)

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CRR - EBA publishes Consultation Paper on the mapping of credit assessments of ECAIs for securitisation - 17 December 2021

The European Banking Authority (EBA) has published a consultation paper on proposed amendments to Commission Implementing Regulation EU/2016/1801 on the mapping of credit assessments of external credit assessment institutions (ECAIs) for securitisation in accordance with Article 270e of the Capital Requirements Regulation (575/2013/EU) (CRR).

The changes reflect amendments introduced by the new Securitisation Framework (Regulation EU/2017/2401), as well as the mappings for two ECAIs that have extended their credit assessments to cover securitisations. The deadline for responses is 31 January 2022.

EBA Consultation Paper: Draft implementing technical standards amending Implementing Regulation EU/2016/1801 on the mapping of ECAIs’ credit assessments for securitisation in accordance with Regulation 575/2013/EU (EBA/CP/2021/44)

Press release

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Stress testing - EBA announces 2023 EU-wide stress test - 17 December 2021

The European Banking Authority (EBA) has announced that it will launch its next EU-wide stress test for banks in 2023. The exercise assesses the resilience of EU banks to adverse economic and market developments and contributes to the assessment of systemic risk in the EU financial system. The decision has been communicated to the European Parliament, the Council of the EU and the European Commission.

The announcement follows a meeting of the EBA’s Board of Supervisors on 8 December 2021 in which a decision was taken to conduct the next stress test in 2023. This is in line with the decision to aim for biennial stress testing and to provide sufficient time for preparation. In the meantime, the EBA notes that national competent authorities and market participants should use the significant quantitative and qualitative information generated by the 2021 stress test.

The EBA will perform its annual transparency exercise in 2022.

Press release

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Deposit guarantee schemes and AFM concept - EBA publishes Final Report on Guidelines - 17 December 2021

The European Banking Authority (EBA) has published its Final Report (EBA/GL/2021/17) setting out its guidelines on the delineation and reporting of available financial means (AFM) of Deposit Guarantee Schemes (DGS) under the Deposit Guarantee Schemes Directive (2014/49/EU) (DGSD) (the Guidelines). The Guidelines take into account an EBA opinion on DGS funding published in January 2020, which identified differences across EU member states in relation to the interpretation of the concept of AFM. The Final Report follows the EBA’s Consultation Paper (EBA/CP/2021/16) on the matter, published in April 2021.

The Guidelines are intended to clarify the concept of AFM and avoid a situation where a DGS could meet the target level of the DGS fund by taking out a loan. Among other things, the Guidelines ensure that only funds that credit institutions have contributed, or that stem indirectly from such contributions (such as recoveries or investment income), count towards reaching the target level.

Given that a review of the DGSD has not yet been proposed and is still several years away from being negotiated and finalised, the Guidelines provide clarification, ahead of any changes in the future, using the existing DGSD as a legal basis. More specifically, they clarify that AFM comprises the following two subsets:

  • qualified AFM: funds stemming directly or indirectly from contributions of DGS member institutions, which count towards reaching the target level of the DGS fund; and
  • other AFM: funds that are not qualified AFM, including borrowed funds stemming from liabilities such as loans, which do not count towards reaching the target level of the DGS fund.

The Final Guidelines differ from those consulted on in relation to the allocation of recoveries to qualified AFM and other AFM. In response to consultation feedback, they replace the original approach with one that permits two alternatives, both of which better fulfil the aims of the Guidelines.

The final Guidelines also set out extended requirements on the information that national competent authorities should report to the EBA concerning DGS under their supervision, including the reporting of outstanding liabilities of DGS and high-level information on the alternative funding arrangements in place.

The Guidelines apply from 30 March 2022.

EBA Final Report: Guidelines on the delineation and reporting of available financial means (AFM) of Deposit Guarantee Schemes (DGS) (EBA/GL/2021/17)

Press release

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CRD IV - EBA publishes methodology for large investment firms to be reclassified as credit institutions - 20 December 2021

The European Banking Authority (EBA) has published a package of two draft regulatory technical standards (RTS) addressing the threshold at which large investment firms should seek reclassification as credit institutions under Article 8a of the Capital Requirements Directive (2013/36/EU) (CRD IV) (as introduced by the Investment Firms Directive ((EU) 2019/2034)).

The draft RTS cover areas relevant for the calculation and implementation of the EUR 30 billion trigger threshold set out at Article 8a(1) CRD IV, including accounting standards for the determination of asset values, the procedure to calculate total assets on a monthly basis and the treatment of assets belonging to EU branches of third-country groups.

The draft RTS will be submitted to the Commission for endorsement, following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

Press release

EBA Draft Regulatory Technical Standards on the reclassification of investment firms as credit institutions in accordance with Article 8a(6)(b) of Directive 2013/36/EU (EBA/RTS/2021/17)

EBA Draft Regulatory Technical Standards on the provision of information for the effective monitoring of the credit institution thresholds under Article 55(5) of Regulation (EU) 2019/2033 (EBA/RTS/2021/18)

Prudential Regulation Authority

CRD - PRA discloses 2021 list of UK G-SIIs - 21 December 2021

The PRA has disclosed the 2021 list of UK headquartered Global Systemically Important Institutions (G-SIIs), in accordance with regulation 26(4) of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (SI 2014/894) (as amended), as follows:

  • HSBC Holdings plc.
  • Barclays plc.
  • Standard Chartered plc.

The PRA has also disclosed their respective sub-categories, applicable scores and G-SII buffers. The buffers will apply from 1 January 2023.

Updated webpage

Recent Cases

Algebris (UK) Ltd and another v Single Resolution Board (SRB) (Case C-934/19) EU:C:2021:1042 - 21 December 2021

Interpretation of requirement for ex-post definitive valuation under SRM Regulation

The European Court of Justice (ECJ) has considered the circumstances in which the Single Resolution Board (SRB) is required to produce an ex-post valuation under Article 20(11) of the Single Resolution Mechanism (SRM) Regulation (806/2014/EU).

Article 20 of the SRM Regulation requires the SRB to ensure that a fair and realistic valuation of a bank’s assets and liabilities is carried out by an independent person before it takes resolution action regarding that bank or uses its power to write down or convert relevant capital instruments and eligible liabilities. If this is not immediately possible, the SRB may carry out a provisional valuation itself, followed by a definitive valuation carried out by an independent expert.

Article 20(11) states that a valuation that does not comply with all of the requirements in Article 20(1) and (4) to (9) should be considered to be provisional until an independent person has carried out a valuation (an ex-post definitive valuation) that is fully compliant with all of those requirements. This should be done “as soon as practicable” to inform the decision to write back creditors’ claims or to increase the value of the consideration paid, in accordance with Article 20(12).

The ECJ concluded that Article 20(11) did not place an obligation on the SRB to produce an ex-post definitive valuation in all scenarios. It stated that:

  • the labelling of the Article 20(11) valuation as an ‘ex-post’ definitive valuation allowed for the possibility of other definitive valuations. This was supported by the wording of Article 20(2), which states that a valuation should be considered as definitive where all the Article 20(1) and (4) to (9) requirements are met; and
  • since Article 20(12) relates to situations in which the SRB has recourse to the bail-in tool, the bridge institution tool or an asset management vehicle, the reference to Article 20(12) in Article 20(11) indicates that an Article 20(11) valuation only applies in those situations.

The judgment is relevant to the interpretation of Article 36(10) of the Bank Recovery and Resolution Directive (2014/59/EU) (BRD), which has equivalent wording to Article 20(11) of the SRM Regulation.

Algebris (UK) Ltd and another v Single Resolution Board (SRB) (Case C-94/19) EU:C:2021:1042 (21 December 2021)