On November 10, 2017, the European Commission launched a consultation on proposals for statutory prudential backstops to address insufficient provisioning for newly originated loans that turn into non-performing loans. Since the 2007/08 financial crisis, there has been a build-up of NPLs in the EU, which impacts banks' viability and lending capabilities. The Commission is proposing to amend the CRR to introduce a requirement for all banks established in the EU to cover incurred and expected losses on newly originated loans that become non-performing. The requirements would be in the form of compulsory and time-bound prudential deductions of NPLs from own funds, and where that minimum coverage requirement is not met, a deduction of the difference between the level of the actual coverage and the minimum coverage from Common Equity Tier 1.
The European Commission has also asked the EBA to provide technical advice in relation to the Commission's consultation proposals. The advice must provide country-by-country estimates on additional/accelerated capital needs triggered for EU banks by the prudential backstops, taking into account, to the extent possible, expected increases in provisions as a result of the application of International Financial Reporting Standard 9 from January 2018. The advice must also assess the impact of certain design aspects too, including those that are relevant to the functioning, scope design and calibration of statutory prudential backstops. The Commission has requested the EBA to provide its report by November 27, 2017.
The Commission's consultation closes on November 30, 2017.
The Consultation Paper is available at: https://ec.europa.eu/info/sites/info/files/2017-non-performing-loans-backstops-consultation-document_en.pdf and the consultation page is available at: https://ec.europa.eu/info/node/63623.
The Commission's request for advice is available at: https://www.eba.europa.eu/documents/10180/2022642/EBA+Call+for+advice_NPLs_prudential+backstops.pdf/8f41cc22-c096-4ab9-ae5c-2101de848a05.
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