Banking Supervision and COVID-19

Klaus Lackhoff

doi:10.17104/9783406779282

Summary

Lackhoff

Banking Supervision and COVID-19 The COVID-19 pandemic is the first crisis with which the Single Supervisory Mechanism has to cope. This mechanism was only established in response to the financial crisis. While it is not yet clear which ramifications the pandemic will have for the financial sector, regulators and in particular super visors have taken swift measures to enable credit institutions from the prudential perspective to deal with the situation. The measures already adopted lay also the ground for future legislative and supervisory responses to the dynamic development of the pandemic and touch upon general legal issues of the SSM. The book brings together the perspective of the European and national supervisors and the perspective of the supervised entities. In the first two parts the adopted measures at the Union level (e.g. in respect of dividends and IFRS 9) and the national level in France, Germany, Italy and Spain are described. The third and fourth part provide the supervised entities’ perspective to these measures and look at upcoming challenges (e.g. recapitalisation and remuneration issues).

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Bibliographic data

Copyright year: 2021
ISBN-Print: 978-3-406-76241-3
ISBN-Online: 978-3-406-77928-2
Publisher: C.H.BECK Recht - Wirtschaft - Steuern, München
Series: Beck International
Language: English
Pages: 284
Product type: Edited Book

Titelei/Inhaltsverzeichnis No access Pages I - XVI
1. 1. I. The Corona Crisis No access Pages 1 - 2
  2. II. The broader context at a glimpse No access Pages 2 - 3
  3. III. What does this mean for banking supervision in Europe? No access Pages 3 - 4
  4. IV. This book No access Pages 4 - 7
1. 1. I. Context of the measures No access Pages 7 - 7
  2. 1. 1. Accounting for Corona-related losses – IFRS 9 and its impact on regulatory capital No access
    2. 2. Treatment of public guarantees No access
    3. 3. Treatment of central bank exposures under the leverage ratio No access
    4. 4. Date of application of other provisions No access
  3. 1. 1. Discussion by the co-legislators No access
    2. 2. IFRS 9 implementation No access
    3. 3. The prudential backstop and minimum loss coverage for NPEs guaranteed by public sector entities No access
    4. 4. The exclusion of central bank exposures from the calculation of the leverage ratio No access
    5. 5. Changes to the treatment of exposures to governments and central banks No access
    6. 6. Market risk under the internal model method No access
    7. 7. Distributions of dividends and remunerations No access
    8. 8. Other elements of the amending regulation No access
  4. 1. 1. The substance of the adopted measures No access
    2. 2. The role of the Commission and the supervisory authorities in the legislative process No access
2. 1. I. Introduction No access Pages 23 - 25
  2. 1. 1. Use of capital buffers No access
    2. 2. Change to the composition of the Pillar 2 requirements No access
    3. 3. Release of liquidity buffers No access
    4. 4. Restrictions of dividends and buy-backs No access
    5. 5. Measures related to credit risk No access
    6. 6. Temporary reduction of capital requirements for market risk No access
    7. 7. Operational relief No access
  3. 1. 1. Effectiveness of the supervisory measures taken by the ECB No access
    2. 2. Reactions of external stakeholders No access
    3. 3. Key characteristics of the ECB’s measures No access
  4. IV. Conclusion No access Pages 38 - 40
3. 1. 1. 1. Material scope of application No access
    2. 2. Personal scope of application No access
    3. 3. Recommendation to National Competent authorities (NCAs) in respect of less significant institutions (LSIs) No access
    4. 4. Interaction with other legal instruments No access
  2. 1. 1. Specific purposes pursued by the dividend recommendation No access
    2. 2. Broader conceptualization of the function of dividends No access
    3. 3. Outlook for future developments No access
  3. III. Why (only) a dividend recommendation? No access Pages 48 - 49
  4. 1. 1. Subsidiaries of an SSM group No access
    2. 2. Parent undertaking outside the SSM No access
  5. 1. 1. Distribution of dividends No access
    2. 2. Share buy-backs No access
  6. 1. 1. Issues relating to the material scope of application No access
    2. 2. Issues relating to the personal scope of application No access
4. 1. 1. 1. A summary of critical issues related to IAS 39 No access
    2. 2. ECB letter to banks No access
  2. II. Impairment under IFRS 9 No access Pages 59 - 61
  3. 1. 1. The Standard No access
    2. 2. Practice No access
    3. 3. ECB Guidance No access
  4. 1. 1. The Standard No access
    2. 2. Practice No access
    3. 3. ECB Guidance No access
5. 1. I. Internal models – a short recap No access Pages 74 - 75
  2. 1. 1. Extension of deadlines for internal model related obligations No access
    2. 2. Postponement of issuance of new internal model related decisions No access
    3. 3. Extended timeline for supervisory benchmarking No access
  3. 1. 1. Compensation of Market Risk multiplier increases due to overshootings No access
    2. 2. CRR2 quick fix No access
  4. IV. Impact of other support measures on internal models No access Pages 80 - 81
  5. V. Assessment of requests for initial approval, material changes or extensions No access Pages 81 - 81
  6. VI. Conclusion No access Pages 81 - 82
6. 1. I. Introduction No access Pages 82 - 83
  2. 1. 1. The notion of “time-limits” No access
    2. 2. Time-limits in EU (soft) law applicable to the ECB No access
    3. 3. Time-limits in national law applicable to the ECB No access
  3. 1. 1. Purpose and modalities of suspending time-limits No access
    2. 2. Example: Laws and regulations suspending time-limits in Austria No access
    3. 3. Application of national suspension measures by the ECB No access
  4. IV. Conclusion No access Pages 94 - 97
1. 1. 1. 1. The economic and legal environment No access
    2. 2. Prudential impact on credit institutions No access
  2. 1. 1. Business continuity No access
    2. 2. Temporary flexibility for submission of national prudential reporting, and public disclosure No access
    3. 3. General observations No access
  3. 1. 1. Release of capital buffer No access
    2. 2. French State Guarantee No access
    3. 3. ACPR request not to pay dividends No access
  4. IV. Commitments undertaken by the banking sector No access Pages 111 - 114
2. 1. I. Introduction No access Pages 114 - 115
  2. 1. 1. Scope of BaFin’s competence for the issuance of supervisory interpretations No access
    2. 2. Legal effects arising from the publications made by BaFin No access
    3. 3. The role of MaRisk No access
  3. 1. 1. Quantitative supervision No access
    2. 2. Qualitative supervision No access
    3. 3. Non-prudential matters No access
  4. IV. Pending regulatory projects No access Pages 128 - 128
  5. V. Conclusion No access Pages 128 - 130
3. 1. I. Introduction No access Pages 130 - 131
  2. 1. 1. The general suspension of terms and deadlines No access
    2. 2. The expansion of the “Golden powers” regime No access
    3. 3. Support measures for banks in Law Decree No 34/2020 No access
  3. 1. 1. The specific extensions of terms and deadlines in the supervisory framework No access
    2. 2. Capital and liquidity reliefs No access
    3. 3. Recommendation on dividend distribution and remuneration policies No access
    4. 4. Banks’ contingency strategies No access
    5. 5. Customer protection and fight against financial crime No access
  4. IV. Emergency national measures on banking resolution No access Pages 145 - 146
  5. V. Conclusions No access Pages 146 - 148
4. 1. I. Overview No access Pages 148 - 149
  2. 1. 1. Suspension of administrative deadlines and time limits No access
    2. 2. The Mortgage Payment Moratorium No access
    3. 3. Unsecured Loans Payment Moratorium No access
    4. 4. Regulation of Banking Sector Moratoria No access
    5. 5. Other legislative measures No access
  3. 1. 1. Banco de España applies the ECB recommendation on dividend distribution to the credit institutions under its supervision No access
    2. 2. Supervisory and accounting measures relating to the flexibility envisaged in the regulatory framework in view of the COVID-19 outbreak of 30 March 2020 No access
    3. 3. Impact of ECB’s prudential recommendations on less significant credit institutions in Spain No access
    4. 4. Banco de España applies the flexibility available in the regulations on minimum requirements for own funds and eligible liabilities (MREL), in view of the impact of COVID-19 No access
  4. IV. Conclusion No access Pages 165 - 167
1. 1. I. Executive summary No access Pages 167 - 168
  2. II. Effectiveness of COVID-19-related measures No access Pages 168 - 170
  3. III. Crisis specific ad-hoc reporting expectations No access Pages 170 - 171
  4. IV. Relevance of globally consistent measures from supervisors and policymakers No access Pages 171 - 172
  5. 1. 1. Using buffers in the current environment No access
    2. 2. Distribution restrictions No access
  6. 1. 1. IFRS 9 transitional arrangements No access
    2. 2. VaR back-testing No access
  7. VII. A possible way forward No access Pages 177 - 179
2. 1. I. Introduction No access Pages 179 - 180
  2. 1. 1. What are LSIs? No access
    2. 2. Supervision of LSIs in the SSM No access
    3. 3. Specific characteristics of LSIs No access
  3. 1. 1. Specific roles of EBA, ECB and NCAs in the crisis No access
    2. 2. Targeted relief measures for LSIs No access
    3. 3. Digression: SRB and ex-ante contributions in 2020 No access
  4. IV. Legislative measures No access Pages 189 - 190
  5. 1. 1. Importance of NCAs No access
    2. 2. Outstanding measures No access
    3. 3. Maintenance of relief measures No access
    4. 4. Procyvlical effects of the crisis No access
    5. 5. Banks are part of the solution for this crisis No access
3. 1. 1. 1. The anatomy of the crisis No access
    2. 2. Impact of COVID-19 on the economy No access
  2. 1. 1. Impact on banks No access
    2. 2. Overview of regulatory actions and their objectives No access
    3. 3. Implications for banks No access
  3. 1. 1. Increasing need for consolidation No access
    2. 2. Growing pressure to reshape business models No access
    3. 3. Accelerated digital transformation No access
  4. IV. Conclusion No access Pages 216 - 219
1. 1. I. Introduction No access Pages 219 - 220
  2. 1. 1. Heightened risk of increase in defaults in credit portfolios No access
    2. 2. Sources and instruments of funding to strengthen the capital base No access
  3. 1. 1. Introduction and overview on State aid measures in the banking sector No access
    2. 2. COVID-19 and public support to banks No access
  4. 1. 1. Conditions for resolution: Failing or likely to fail? No access
    2. 2. Implications of a “failing or likely to fail” assessment No access
  5. V. Conclusions No access Pages 230 - 231
  6. 1. 1. Introduction No access
    2. 2. Public intervention in asset relief measures No access
2. 1. I. Introduction No access Pages 236 - 238
  2. 1. 1. Variable remuneration: Pay for risk-adjusted performance No access
    2. 2. Bonus pool: Maintaining a sound capital basis No access
    3. 3. Interplay between regulatory requirements and contract and labour law No access
  3. 1. 1. Generally, no impact of COVID-19 on target achievement for 2019 bonus No access
    2. 2. Potential implications for determination of bonus pool for 2019 bonuses No access
  4. 1. 1. Adjustment of performance parameters No access
    2. 2. Award: Use of so-called modifiers at institutional (or group) level No access
    3. 3. Award: Granting and vesting of variable remuneration (ex-ante risk adjustment and ex-post risk adjustment) No access
    4. 4. Determination and distribution of the bonus pool No access
  5. 1. 1. Increase of deferred variable remuneration and pay-out in equity instruments No access
    2. 2. Increased use of qualitative and relative performance parameters No access
    3. 3. Refrain from creating obligations to pay variable remuneration No access
  6. VI. Conclusion No access Pages 252 - 254
3. 1. I. Introduction No access Pages 254 - 255
  2. II. The PEPP as temporary crisis intervention No access Pages 255 - 256
  3. 1. 1. The OMT programme No access
    2. 2. The PSPP No access
    3. 3. In comparison: the PEPP No access
  4. 1. 1. Bundesverfassungsgericht vs. ECJ: quis iudicabit? No access
    2. 2. Criteria for assessing an ECB programme’s legality No access
  5. 1. 1. Proportionality of the PEPP No access
    2. 2. The PEPP’s compatibility with the monetary financing prohibition No access
  6. VI. Outlook No access Pages 268 - 269
4. 1. 1. 1. The PSPP-judgement of the Bundesverfassungsgericht No access
    2. 2. Consequences of the PSPP-judgement No access
    3. 3. The Bundesverfassungsgericht and the Banking Union No access
  2. 1. 1. The constitutional complaints No access
    2. 2. Decision regarding the SSM No access
    3. 3. Decision regarding the SRM No access
  3. 1. 1. Starting points for ultra vires arguments No access
    2. 2. Procedural issues No access
  4. IV. Conclusion No access Pages 279 - 281
Index No access Pages 281 - 284