Opinion of the ECB on amendments to the Union prudential framework in response to the COVID-19 pandemic

Oct 12, 2020 Benn-Ibler Rechtsanwälte

The European Central Bank (ECB) received a request to submit a proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) No 575/2013 (Capital Requirements Regulation) and (EU) 2019/876 (Regulation amending the Capital Requirements Directives) as a result of adjustments in response to the COVID-19 pandemic.

The ECB supports the initiative to maximize the ability of credit institutions to lend and absorb losses related to the pandemic, while ensuring resilience.

The adjustments to the Regulation are welcomed as they further strengthen the capacity of the banking system to mitigate the economic impact of the pandemic and to support the recovery of the economy, while preserving essential elements of the supervisory framework.

Moreover, some elements of the proposed regulation complement the supervisory measures taken by the ECB to mitigate the economic consequences. Certain measures recently agreed by the Basel Committee on Banking Supervision (BCBS) require changes to the Union legal framework in order to be effectively implemented. Further adjustments to the proposed regulation should not fundamentally change the prudential framework but should continue to respect the agreed Basel standards and avoid further fragmentation of the European single rulebook.

As a general remark, the ECB notes that if the Common Equity Tier 1 (CET1) ratio were to fall sharply, the combined capital buffer requirement would no longer be met and credit institutions would therefore be able to distribute funds only within the limits of the maximum distributable amount. If income is adjusted downwards, distributions are to be cancelled regardless of the extent of the deviation. Credit institutions which may not be prepared to use their capital buffers for further lending because they fear that they will have to cancel coupons related to additional Tier 1 capital and are therefore exposed to possible negative reactions from market participants would compromise the intended positive effect of the capital buffer framework.

Opinion of the European Central Bank, C 180/4 (20.05.2020)