Credit Institutions Directly Supervised by the Central Bank

Regulatory Requirements

In March 2020 the European Central Bank (ECB) and the European Banking Authority (EBA) announced a package of supervisory relief measures for credit institutions to ensure they could continue to fulfil their role in funding the real economy.

Following this, the Central Bank assessed where similar flexibility for credit institutions could apply to aspects of the regulatory framework under its remit.

On 28 July 2020, the ECB communicated its exit strategy from the supervisory relief measures taken at the outset of the COVID-19 crisis. The Central Bank has now also assessed the ongoing application of the aforementioned flexibility in the context of its regulatory framework and this is reflected below.

Postponement of Deadlines for Remedial Actions/Measures

In March 2020, the Central Bank applied a level of supervisory flexibility in relation to the deadlines for remedial actions/measures to ensure regulated entities could take the actions and steps needed to cope with significantly changed operational demands, to remain resilient, and to continue to serve their customers and the economy.

Individual firms could engage directly with their supervisor where they had difficulties in relation to meeting specific risk mitigation programme (RMP) submission dates. Supervisors assessed the circumstances and determined on a case-by-case basis whether a postponement, of up to 6 months, of such measures would be necessary in order to achieve the objectives stated above.

Taking into account the economic and financial developments so far and the gradual return to operational normality at most banks, the Central Bank does not foresee any further postponements of the deadlines for remedial actions imposed in the context of on-site inspections and the verification of compliance with qualitative SREP measures amongst others.

Pillar 3 Disclosures

In line with the EBA Statement on supervisory reporting and Pillar 3 disclosures in light of COVID-19, the Central Bank expects credit institutions to advise of any delay, the reasons for such delay and, to the extent possible, the estimated publication date of their Pillar 3 reports, if they are delayed. In order to address the importance of transparency and uncertainties on the risks faced by credit institutions, credit institutions should assess the need for additional Pillar 3 disclosures on prudential information that may be necessary in order to properly convey the risk profile of the credit institution in the context of the COVID-19 outbreak.

When doing this assessment, credit institutions should take into account the extraordinary measures that competent authorities, central banks, national governments, and other EU bodies have announced to address the adverse systemic economic impact of the outbreak.

ECB/SSM Announcements

Relief measures regarding capital and liquidity requirements

The Central Bank has actively participated in the Eurosystem and European System of Financial Supervision’s response to COVID-19. Accordingly, in line with the ECB announcement of 12 March 2020, and subsequent FAQs, the Central Bank has implemented a number of measures to provide its directly supervised credit institutions with flexibility in meeting certain capital and liquidity requirements.

Credit institutions are permitted to use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, namely Additional Tier 1 or Tier 2 instruments, to partially meet the Pillar 2 Requirements (P2R) in accordance with Article 104a(4) of CRDV. This brings forward a measure that was scheduled to come into effect in January 2021, as part of the latest revision of the Capital Requirements Directive (CRDV).

Capital and liquidity buffers have been designed to support credit institutions to withstand stressed scenarios. Given the challenges presented by the COVID-19 crisis, the Central Bank will allow credit institutions to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), the capital conservation buffer (CCB) and the liquidity coverage ratio (LCR).

The above measures provide significant capital relief to credit institutions to support the economy. Credit institutions should continue to apply sound underwriting standards, pursue adequate policies regarding the recognition and coverage of non-performing exposures, and conduct solid capital and liquidity planning and robust risk management.

In line with the ECB announcement of 28 July, and subsequent FAQs, the Central Bank will not expect banks to operate above the level of their P2G any sooner than the end of 2022. In relation to the LCR, the point in time at which the Central Bank would expect banks which have previously used their liquidity buffers to once again comply with the general 100% minimum level will depend on both bank-specific (e.g. access to funding markets) as well as market-specific factors (e.g. demand for liquidity from households, corporates and other market participants). In any event, the Central Bank will not expect this any sooner than the end of 2021.

EBA Announcements

In line with announcements made on regulatory flexibility from the EBA, the Central Bank confirms that it will apply the measures as outlined in the EBA’s recent announcements:

See also: