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DRAFT REPORT (COM(2021)0664 – C90397/2021 – 2021/0342(COD))

On the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor

ECON-PR-731818

Committee on Economic and Monetary Affairs · Rapporteur: Jonás Fernández

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This is the rapporteur's draft report on the Commission proposal to amend Regulation (EU) No 575/2013 on bank capital requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor. It proposes amendments to add transitional arrangements for unrated corporates and residential mortgages, new definitions for environmental, social and governance risks, and rules on cryptoasset exposures. It amends definitions and rules across the regulation, including on operational risk, market risk, credit risk mitigation, and disclosure requirements. It also proposes transitional arrangements for equity exposures and SME exposures, and mandates reports from the European Banking Authority.

Committee position. The rapporteur proposes to amend the Commission proposal by adding transitional arrangements for unrated corporates and residential mortgages, new ESG risk definitions and reporting, and a mandate for the Commission to report on cryptoasset exposures, among other changes.

Key points

  1. Adds a transitional period for investment grade exposures to unrated corporates, excluding large corporates, with a report by the European Banking Authority.
  2. Introduces a transitional arrangement for low-risk residential mortgage lending, with eligibility criteria verified by competent authorities and monitored by the European Banking Authority.
  3. Encourages institutions to extend concessions to debtors facing difficulties due to COVID-19 and the Russian-Ukrainian war, with guidelines from the European Banking Authority on material diminished financial obligation.
  4. Lays down definitions for environmental, social and governance risks, including physical risk and transition risk, and requires supervisory reporting on exposures to these risks.
  5. Notes the growth in cryptoassets and asks the Commission to report on whether a dedicated prudential treatment should be developed, after consulting the European Banking Authority.
  6. Amends definitions for operational risk, legal risk, model risk and ICT risk, and for probability of default, loss given default and conversion factors.
  7. Revises rules on credit risk mitigation, including eligibility of protection providers and the substitution approach, and on the treatment of exposures secured by immovable property.
  8. Amends the market risk framework, including the alternative standardised approach, the alternative internal model approach, and the treatment of collective investment undertakings.
  9. Sets out transitional arrangements for equity exposures, allowing institutions to continue applying certain risk weights until 31 December 2029.
  10. Introduces a transitional treatment for exposures to unrated corporates with a risk weight of 65% until 31 December 2032, subject to conditions including annual sales not exceeding EUR 500 million.
  11. Requires the European Banking Authority to develop technical standards and guidelines on various topics, including operational risk, ESG disclosure, and credit valuation adjustment risk.
  12. Amends disclosure requirements, including on ESG risks, and requires institutions to submit disclosures to the European Banking Authority in electronic format.

Who is affected

  • Credit institutions in the EU, which must apply the amended capital requirements, definitions and transitional arrangements.
  • Unrated corporates, which may benefit from transitional treatment for their bank exposures.
  • Institutions using internal ratings-based approaches, which must apply new definitions and input floors.
  • Competent authorities, which must verify eligibility criteria and may increase risk weights.
  • The European Banking Authority, which must develop technical standards, guidelines and reports.

Figures and deadlines

  • EUR 1 million: threshold for total exposure to natural persons or SMEs for retail exposure classification.
  • 0.05%: minimum probability of default input floor for exposures to institutions and corporates.
  • 45%: loss given default for senior exposures without eligible funded credit protection to central governments and central banks and financial sector entities.
  • 40%: loss given default for senior exposures without eligible funded credit protection to corporates which are not financial sector entities.
  • 100%: risk weight for object finance exposures.
  • 150%: maximum risk weight that designated authorities may set for exposures secured by mortgages on residential property.
  • 31 December 2032: end date for transitional treatment for exposures to unrated corporates with a risk weight of 65%.
  • EUR 500 million: maximum annual sales of a corporate for eligibility for the 65% risk weight transitional treatment.

Legal basis: Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union.