Credit Institutions Directly Supervised by the Central Bank

Regulatory Requirements

In March 2020 the European Central Bank (ECB) and the European Banking Authority (EBA) announced a package of supervisory relief measures for credit institutions to ensure they could continue to fulfil their role in funding the real economy.

Following this, the Central Bank assessed where similar flexibility for credit institutions could apply to aspects of the regulatory framework under its remit.

On 28 July 2020, the ECB communicated its exit strategy from the supervisory relief measures taken at the outset of the COVID-19 crisis. The Central Bank has now also assessed the ongoing application of the aforementioned flexibility in the context of its regulatory framework and this is reflected below.

View details of the Central Bank's previous expectations for reference purposes only.

Postponement of Deadlines for Remedial Actions/Measures

In March 2020, the Central Bank applied a level of supervisory flexibility in relation to the deadlines for remedial actions/measures to ensure regulated entities could take the actions and steps needed to cope with significantly changed operational demands, to remain resilient, and to continue to serve their customers and the economy.

Individual firms could engage directly with their supervisor where they had difficulties in relation to meeting specific risk mitigation programme (RMP) submission dates. Supervisors assessed the circumstances and determined on a case-by-case basis whether a postponement, of up to 6 months, of such measures would be necessary in order to achieve the objectives stated above.

Given that the banking sector has shown operational resilience, the Central Bank now expects credit institutions to meet specific RMP submission dates. Should firms identify concerns in meeting these timelines they should engage in a timely manner with their usual supervisors.

Pillar 3 Disclosures

Credit institutions should assess the need for additional Pillar 3 disclosures on prudential information that may be necessary in order to properly convey the risk profile of the credit institution in the context of the COVID-19 outbreak.

When doing this assessment, credit institutions should take into account the extraordinary measures that competent authorities, central banks, national governments, and other EU bodies have announced to address the adverse systemic economic impact of the outbreak.

Additional Data Requests

Reliable supervisory reporting is crucial in times when the financial system faces many challenges caused by the COVID-19 pandemic. To examine the effects of COVID-19 on the financial sector, the Central Bank will require additional targeted information to be submitted by credit institutions during this period. While we aim to be measured and pragmatic with these data requests in terms of the type and frequency of requests, recognising the rapidly evolving nature of the situation we are faced with, we expect credit institutions to continue to engage constructively with us and respond to such requests in an expedient manner.

ECB/SSM Announcements

Relief measures regarding capital and liquidity requirements

The Central Bank has actively participated in the Eurosystem and European System of Financial Supervision’s response to COVID-19. Accordingly, in line with the ECB announcement of 12 March 2020, and subsequent FAQs, the Central Bank has implemented a number of measures to provide its directly supervised credit institutions with flexibility in meeting certain capital and liquidity requirements.

Credit institutions are permitted to use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, namely Additional Tier 1 or Tier 2 instruments, to partially meet the Pillar 2 Requirements (P2R) in accordance with Article 104a(4) of CRDV. This brings forward a measure that was scheduled to come into effect in January 2021, as part of the latest revision of the Capital Requirements Directive (CRDV).

Capital and liquidity buffers have been designed to support credit institutions to withstand stressed scenarios. Given the challenges presented by the COVID-19 crisis, the Central Bank will allow credit institutions to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), the capital conservation buffer (CCB) and the liquidity coverage ratio (LCR).

The above measures provide significant capital relief to credit institutions to support the economy. Credit institutions should continue to apply sound underwriting standards, pursue adequate policies regarding the recognition and coverage of non-performing exposures, and conduct solid capital and liquidity planning and robust risk management.

In line with the ECB announcement of 28 July, and subsequent FAQs, the Central Bank will not expect banks to operate above the level of their P2G any sooner than the end of 2022. In relation to the LCR, the point in time at which the Central Bank would expect banks which have previously used their liquidity buffers to once again comply with the general 100% minimum level will depend on both bank-specific (e.g. access to funding markets) as well as market-specific factors (e.g. demand for liquidity from households, corporates and other market participants). In any event, the Central Bank will not expect this any sooner than the end of 2021.

Relief measures regarding credit institutions' leverage ratio

Effective 28 June 2021, credit institutions under the Central Bank’s direct supervision may continue to exclude certain central bank exposures from the leverage ratio. This decision by the Central Bank follows the Governing Council of the ECB's determination, as monetary authority of the euro area, that exceptional circumstances exist that permit the temporary exclusion of certain exposures to central banks from the leverage ratio’s total exposure measure in view of the Covid-19 pandemic. This decision extends, until March 2022, the relief measure regarding credit institutions’ leverage ratio provided in October 2020, which was due to expire on 27 June 2021.

The Capital Requirement Regulation (CRR) allows banking supervisors, after consulting the relevant central bank, to allow credit institutions to exclude certain central bank exposures from their leverage ratio. Such assets include coins and banknotes as well as deposits held at the central bank.

The 3% leverage ratio requirement is binding since 28 June 2021 in accordance with Article 92(1)(d) CRR. Credit institutions that elect to avail of the relief measures regarding leverage ratio must recalibrate the 3% leverage ratio requirement in such a way that only the central bank exposures newly accumulated since the beginning of the pandemic effectively benefit from the leverage ratio relief. In other words, only the increase in credit institutions' central bank exposures since end-2019 would in practice lead to leverage ratio relief; this maintains the level of resilience provided by the leverage ratio before the pandemic.

This extension applies until 31 March 2022. Credit institutions that elect to use this extension must ensure that the expiry of the prudential exemption on 31 March 2022 is factored into their capital plans to maintain sufficient capital levels in accordance with regulatory requirements.

EBA Announcements

In line with announcements made on regulatory flexibility from the EBA, the Central Bank confirms that it will apply the measures as outlined in the EBA’s recent announcements:

See also:

The Central Bank will continue to review its approach to supervisory flexibility for credit institutions throughout the duration of the COVID-19 pandemic and may provide further updates as required.