Financial Services Regulation & Compliance - Banking Dec 2017


Tracker Mortgage Examination Progress Report - December 2017

The Central Bank has published a Tracker Mortgage Examination Progress Report in December 2017. The Central Bank confirmed that the five main lenders are on course to meet their October 2017 commitments and that known issues around disputed groups in respect of lenders have now been resolved to the satisfaction of the Central Bank. The report notes that as at mid-December, lenders have included 33,700 customers as affected by tracker mortgage failings. To date, €297 million has been paid in redress and compensation. A further progress report will be submitted to the Minister on the basis of end-March 2018 data.

Research technical paper: Bank Asset Quality and Monetary Policy Pass-Through

A research paper by David Byrne and Robert Kelly examines the quality of bank credit in the euro area and its effect on the efficient pass-through of monetary policy actions. The paper considers the period 2008 to 2014.


EBA issues revised list of ITS validation rules

The EBA has issued a revised list of validation rules in its Implementing Technical Standards on supervisory reporting, highlighting those which have been deactivated either for incorrectness or for triggering IT problems. Competent Authorities throughout the EU are informed that data submitted in accordance with these ITS should not be formally validated against the set of deactivated rules.

European Banking Authority updates Single Rulebook Q&A

The EBA has published questions and answers in the Single Rulebook Q&A on the following topics:

  • in relation to CRR: supervisory reporting (Articles 5, 99, 113, 129, 415), market risk (Article 335)
  • in relation to BRRD: recovery and resolution (Articles 44, 103)

ECB approves major projects in field of large-value payments and collateral management

The Governing Council of the ECB approved the consolidation of the Eurosystem’s real-time gross settlement system TARGET2, the securities settlement platform TARGET2-Securities (T2S) and the development of a Eurosystem Collateral Management System. The projects will modernise existing systems and increase overall efficiency.

The TARGET2-T2S consolidation will provide market participants across the Eurosystem with enhanced liquidity management procedures and is expected to be launched in November 2021. The Eurosystem Collateral Management System (ECMS) will provide a harmonised platform for collateral operations across the Eurosystem and will replace the existing systems of the 19 national central banks for those functions which can be harmonised until the launch which is planned for November 2022.

EBA welcomes the revised Basel framework and provides an overview of its impact in the EU

The EBA welcomed the agreement reached on the finalisation of the Basel III framework by the Basel Committee on Banking Supervision (BCBS). This concludes the global post-crisis prudential reforms. Andrea Enria, Chairperson of the EBA, stated that the EBA is committed to engaging with Competent Authorities and European co-legislators to ensure a successful implementation of the standards in the EU.

A summary of the results were published by the EBA which show the impact of the agreed reforms on the EU banking sector. The analysis showed that minimum required capital for the EU sample would increase by 12.9% in weighted average terms while the weighted average CET1 ratio, calculated in accordance with the revised framework, is 0.6 percentage points lower than the status quo.

ECB seeks industry feedback on assessment of internal models used for calculating counterparty credit risk

The ECB has published the draft ECB guide on the assessment methodology (EGAM) for the internal model method and the advanced CVA capital charge for counterparty credit risk. The draft guide indicates how ECB Banking Supervision intends to assess internal models for counterparty credit risk at directly supervised banks. It also aims to provide guidance to these institutions on their self-assessment of the internal model method (IMM) and advanced method for credit valuation adjustment risk. Industry feedback can be submitted as from today and until 31 March 2018 and the guide will be finalised following another call for feedback in 2018.

Publication of the draft ECB guide on the assessment methodology (EGAM) for the internal model method and advanced CVA capital charge for counterparty credit risk - frequently asked questions (FAQs)

The ECB has published FAQs in relation to the draft guide on the assessment methodology (EGAM) for the internal model method and advanced CVA capital charge for counterparty credit risk. The FAQs address matters such as the purpose of the guide, who it applies to and why it is being published.

EBA publishes discussion paper on EU implementation of the revised market and counterparty credit risk frameworks

The EBA has published a discussion paper on the implementation in the European Union (EU) of the revised market risk and counterparty credit risk frameworks. The paper discusses some of the most important technical and operational challenges to implement the frameworks and how the issues may be addressed. It also seeks feedback from stakeholders on the proposals. The consultation runs until 15 March 2018.

Capital and liquidity buffers and the resilience of the banking system in the euro area

The European Central Bank issued a working paper discussing capital and liquidity buffers and the resilience of the banking system in the euro area. The paper investigates how capital and liquidity buffers affect the evolution of bank loans in periods of financial and economic distress. In its analysis the ECB studied the responses of 219 individual banks to aggregate demand, standard and unconventional monetary policy shocks in the euro area between 2007 and 2015.

EBA advises the Commission to disallow the application of the 180 day past due exemption for material exposures

The EBA has issued its advice to the European Commission on the appropriateness of continuing to apply the 180 day past due (DPD) exemption for material exposures. Based on an analysis of data submitted by the institutions still using the 180 DPD criterion, the EBA recommends that this exemption be disallowed and all institutions should consequently rely on the 90 DPD regime for all exposures.

EBA Report on Liquidity Measures under Article 509(1) of the CRR

The EBA has published a report on liquidity measures under Article 509(1) of the CRR. The objective of the report is to assess banks’ liquidity risk profiles in terms of their short-term resilience. The report presents a detailed analysis of the short-term resilience of banks’ liquidity risk profiles and the potential impact of the liquidity coverage requirements on banks’ supply of lending to the real economy. The analysis is based on the QIS monitoring data of December 2016, reporting data provided by participating banks on a voluntary and confidential basis.

EBA updates its quantitative analysis on MREL

The EBA has published an updated quantitative analysis on the minimum requirement for own funds and eligible liabilities (MREL). The EBA updated its estimates of capacity and funding needs of a representative sample of European banks to meet MREL under alternative scenarios, based on the same methodology and assumptions developed in the MREL report in December 2016. The results of the updated analysis showed that in 2016, the consistently monitored sample of 100 banks, on average:

  • Improved their risk profile as measured by a risk weighted assets (RWAs) decrease of €431.1bn (-4.9%), which significantly contributed to the improved (lowered) estimated MREL funding needs. Only marginally increased the stack of MREL eligible instruments, both in absolute and relative amounts – nominal MREL increased by €4.5bn (+0.1%), while the share of MREL as a percentage of RWAs improved by 1.9 percentage points to 37.8% of RWA. This was largely driven by G-SIIs which have been actively issuing MREL in 2016 and early 2017.
  • Slightly improved the quality of MREL, as captured by the increase of the stock of subordinated MREL instruments (€33bn, +1.9%).
  • Mitigated total estimated MREL funding needs by €25.8bn (-11.4%) and €119.0bn (-30.9%) under Loss Absorption (LA) buffer and buffer/8% baseline scenarios respectively. Aggregated subordinated estimated MREL funding needs have decreased by €15.2bn (-11.3%).

Guideline (EU) 2017/2335 of the European Central Bank of 23 November 2017 on the procedures for the collection of granular credit and credit risk data

The Guideline provides details on the national central banks' obligations to transmit credit data and counterparty reference data collected pursuant to Regulation (EU) 2016/867 (ECB/2016/13) to the ECB, including the national central banks' responsibilities for registering counterparties in Register of Institutions and Affiliates Database (RIAD), and on the procedures for the transmission of such data.

Changes to collateral eligibility criteria for unsecured bank bonds

The ECB has decided on changes to the collateral eligibility criteria applicable to unsecured debt instruments issued by credit institutions or investment firms or their closely-linked entities. Currently eligible senior unsecured bank bonds that do not fulfil new eligibility criteria will remain eligible until 31 December 2018 and senior (preferred) unsecured bank bonds will remain eligible as collateral.

EBA technical standards will help reduce divergent practices in the application of simplified obligations and waivers in recovery and resolution planning

EBA has published a report on the application of simplified obligations and waivers in recovery and resolution planning and its final draft regulatory technical standards (RTS) specifying the eligibility criteria to determine whether institutions could be subject to simplified obligations when drafting such plans. The report shows that across the EU significantly divergent practices apply. The RTS should help reduce some of the observed divergent practices by increasing harmonisation in simplified obligations eligibility assessment methodologies applied by national authorities.

ECB Banking Supervision: SSM supervisory priorities 2018

The ECB produced a document setting out focus areas for supervision in 2018. In 2018 four priority areas will guide banking supervision:

1. business models and profitability drivers

2. credit risk

3. risk management

4. activities comprising multiple risk dimensions

For each of the priority areas a number of supervisory initiatives will be carried out; the full implementation of such initiatives may span more than one year.

Letter on variable remuneration policy

In a letter to national competent authorities Danièle NOUY, Chair of the Supervisory Board of the ECB, stated that the ECB pays close attention to the dividend and remuneration policies of the institutions under its supervision. In particular any impact that such policies may have on an institution maintaining a sound capital base. The letter underlined the need to adopt a prudent, forward-looking stance when deciding on an institution’s remuneration policy and urged institutions to duly consider the potentially detrimental impact of their remuneration policy on its maintaining a sound capital base, especially taking into account the transitional requirements set out in Directive 2013/36/EU (CRD IV).

For further information please contact a member of the Financial Regulation team.

Date published: 10 January 2018