European co-operative banks respond to EU Covid-19 package

The Commission is encouraging banks and supervisory authorities to make use of the flexibility in the EU's accounting and prudential frameworks

The European Association of Co-operative Banks (EACB) has welcomed the banking package adopted by the European Commission in response to the Covid-19 crisis.

But it says additional regulatory aspects should be considered.

The package, announced on 28 April, aims to ensure that banks can continue to lend money to households and businesses. It includes an Interpretative Communication on the EU’s accounting and prudential frameworks, as well as targeted “quick fix” amendments to EU banking rules.

In particular, the Commission proposes exceptional temporary measures to alleviate the immediate impact of the crisis. These include adapting the timeline of the application of international accounting standards on banks’ capital, treating more favourably public guarantees granted during the pandemic, postponing the date of application of the leverage ratio buffer and modifying the way of excluding certain exposures from the calculation of the leverage ratio.

In its Interpretive Communication, the Commission encourages banks and supervisory authorities to make use of the flexibility in the EU’s accounting and prudential frameworks. Banks are also invited to ‘act responsibly’, for example, by refraining from making dividend distributions to shareholders or adopting a conservative approach to the payment of variable remuneration.

Responding to the announcement, EACB president Gerhard Hofmann said the measures would help expand banks’ ability to lend to the real economy during these times of stress. “In our view, they are a very important contribution to stabilising the corporate sector, especially SMEs, in the current Covid-19 crisis,” he said.

The EACB argues that while the banking sector is much better prepared to face a financial crisis than in 2008, additional regulatory aspects should be considered “to ensure that the risk build-up associated with the credit process do not place banks under further supervisory and regulatory stress once the most acute phase of the crisis has subsided”.

Mr Hofmann added: “It remains necessary that even during an accelerated legislative process with tighter timelines and procedures – some further urgent elements may be addressed and integrated. EACB members see a need, for instance, for adjustments in the area of resolution requirements, where recalibrations in the area of total loss absorbing capacity.

“(TLAC)/ minimum requirement for own funds and eligible liabilities (MREL) calculation and Single Resolution Fund contributions appear necessary. Otherwise, conflicts between the goals of monetary policy, liquidity supply, and governmental programmes on one side and regulatory requirements on the other would arise.”

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