MONITORING REPORT ON RISK REDUCTION INDICATORS1
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FOR PUBLICATION
European Commission Services European Central Bank Single Resolution Board
MONITORING REPORT ON RISK REDUCTION INDICATORS1
–
JUNE 2020
Executive Summary
This is the sixth edition of the monitoring report on risk reduction indicators, produced at the
request of the President of the Eurogroup, as per his letter to the President of the Euro Summit
of 25 June 2018. The aim of risk reduction monitoring reports is to provide a regular
assessment on progress on risk reduction within the banking union (BU) so as to inform
political decisions on how to further progress towards its completion. The report has been
prepared jointly by the European Commission services, the European Central Bank (ECB) and
the Single Resolution Board (SRB).2
An overview of all quantitative indicators confirms that, on aggregate, and based on the
available data, banks’ capital and liquidity positions have improved steadily since the end of
2014 and remained largely stable since 2018. Banks’ overall leverage has also decreased
since the end of 2014. Non-performing loans (NPLs) on banks’ balance sheets have continued
to decline. The build-up of eligible instruments for the minimum requirement for eligible
liabilities (MREL) by the sector has continued, leading to a slight reduction in the overall
shortfall.
The report is based on latest available data as of December 2019 for prudential indicators and
as of December 2018 data for MREL indicators. While the quantitative parts of this report do
not reflect the impact of the COVID-19 pandemic - nor have they been adjusted for the latest
regulatory and supervisory measures in response to the pandemic - the qualitative parts of this
report include descriptions of regulatory and prudential measures taken in light of COVID-19
in relation to each indicator. In line with the structure of the report, these measures are
described in the respective sections of the report. The approach taken with regard to the impact
of COVID-19 is further explained in Box 1.
1
Report prepared for the 4-5 June 2020 Eurogroup Working Group meeting.
2
European Commission, European Central Bank, Single Resolution Board (2017) Note presenting a stock-take of financial
reforms and Annexes.
1FOR PUBLICATION
European Commission Services European Central Bank Single Resolution Board
Overview of main developments:
Capital The average Common Equity Tier 1 (CET1) ratio improved by 3.6 percentage points (pp) to 14.5% since the
position establishment of the Single Supervisory Mechanism (SSM)
►Most Member States (MS) now exhibit higher CET 1 ratios than five years ago
►Overall, the capital position in the BU has remained largely stable over the past quarters
Leverage
ratio Banks have, on average, reduced their leverage by 1.5 pp as the average leverage ratio improved from 4.0% in
Q4 2014 to 5.5% in Q4 2019
Liquidity The liquidity and funding position of banks, as measured by the Liquidity Coverage Ratio (LCR) and the Net
and Net Stable Funding Ratio (NSFR) continued to be strong, with the average LCR and NSFR having been consistently
Stable above the 100% minimum requirements since the inception of the SSM
Funding ►Based on improvements in the NSFR from 101.9% in Q4 2014 to 113% in Q4 2019, the funding profile of banks,
position on average, has become more robust over the last few years
NPLs
The average NPL ratio decreased by 4.6 pp since Q4 2014, reaching 3.2% in Q4 2019
►NPL ratios decreased for almost all MS, with larger decreases for MS with high NPL ratios
Overall, banks continued to build up their Minimum Requirement for Eligible Liabilities (MREL) capacity to
MREL
reach the requirements set by the SRB. The aggregate MREL funding needs required for compliance is
approximately 7.4% of the total consolidated MREL requirement.
► This represents a decrease of 0.1% total risk exposure amount (TREA) at the same date compared to the
previous report, due to an increase in the scope, recalibration of MREL targets for several banks and an
updated view on MREL eligible liabilities.
2FOR PUBLICATION
European Commission Services European Central Bank Single Resolution Board
Box 1: Update on coronavirus-related measures
The spread of the coronavirus (COVID-19) has led to an unprecedented global
crisis. COVID-19 has caused one of the sharpest economic contractions in recent
history and led to a significant increase in financial market stress. At the same time, the
medium to long-term consequences of the crisis are still largely unpredictable. It is
against this background that this report should be read. As the crisis is still unfolding,
this report does not attempt to provide estimates on how the current crisis might affect
the European banking sector over the coming months and years.
At the same time, banks have entered this crisis with stronger balance sheets,
higher capital levels, better liquidity positions, more stable funding structures and
more loss-absorbing instruments than they had at the time of the global financial
crisis of 2007-09. Furthermore, unlike the 2007-09 crisis, this crisis did not originate in
the banking sector. Nevertheless, despite the policy responses in support of the real
economy, it is unlikely that the banking sector can be shielded fully from this
unprecedented global recession. Without giving any indica tion of the magnitude of
potential effects, asset quality is likely to deteriorate and banks’ profitability is likely to
weaken due to expected increases in credit losses and decreases in income. Average
capital levels may also decline as banks use their accumulated buffers and take
advantage of relief measures to continue lending to the real economy and to absorb
losses.
European and global authorities have taken extraordinary measures to mitigate
the economic and financial consequences of COVID-19. As highlighted in the
executive summary, relevant regulatory, macroprudential, supervisory and resolution-
related measures (both on a European and on a national level) are mentioned in the
respective sections of this report, such as the capital and liquidity relief provided by
supervisory authorities or resolution-related relief measures taken by the SRB. Please
note that, at the time of writing, the quantitative impact of the crisis remains unknown as
the latest financial information (as of Q4 2019) predates the onset of the pandemic. As
a result, the indicators shown in this report do not yet reflect these relief measures.
3Assessment of risk reduction indicators
This section assesses (a) the evolution of selected indicators at Member State (MS) level and (b)
how the level of risk in the BU has been affected. 3
1. Capital position
COVID-19 measures
On 12 March 4, 20 March5, 27 March6 and 16 April7 2020, the ECB took a number of
supervisory measures to ensure that its directly supervised banks can continue to fulfil their
role in funding the real economy as the economic effects of the COVID-19 pandemic become
apparent.
Banks are allowed to operate temporarily below the level of capital defined by the
Pillar 2 Guidance (P2G) and the capital conservation buffer (CCB).
Banks are allowed to use capital instruments that do not qualify as Common Equity
Tier 1 (CET1) capital, such as Additional Tier 1 or Tier 2 instruments, to meet the
Pillar 2 Requirements (P2R), as long as they meet at least 56.25% of their P2R with
CET1.8
Banks are encouraged not to pay dividends for financial years 2019 and 2020 until at
least 1 October 2020 and also to refrain from share buybacks aimed at remunerating
shareholders.
Banks are allowed to adjust the supervisory component of the capital requirements
for market risk in response to the extraordinary levels of volatility recorded in financial
markets since the outbreak of COVID-19.
On 28 April 2020, the Commission presented a set of measures to facilitate bank lending and
support households and businesses in the EU amid the COVID-19 pandemic. The “COVID-
19 Banking Package” 9 includes an Interpretative Communication on the EU's accounting
and prudential frameworks as well as a legislative proposal for targeted amendments to the
Capital Requirements Regulation (CRR).
The Interpretative Communication 10 on the EU's accounting and prudential
frameworks further clarifies how EU rules should be applied by banks and supervisors
in a flexible but responsible manner in order to ensure continued lending to
businesses and households in the current context.
3
Changes in the indicators from one reference period to another can be influenced by the changes in the sample of reporting institutions.
4
ECB (12 March 2020), ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus
5
ECB (20 March 2020), ECB Banking Supervision provides further flexibility to banks in reaction to coro navirus
6
ECB (27 March 2020), ECB asks banks not to pay dividends until at least October 2020
7
ECB (16 April 2020), ECB Banking Supervision provides temporary relief for capital requirements for market risk
8
This brings forward a measure that was initially scheduled to come into ef fect in January 2021, as part of the latest revision of the Capital
Requirements Directive through Directive (EU) 2019/878 (CRD V) which was published in the Official Journal of the EU on 7 June 2019
and entered into force 20 days later.
9
European Commission (28 April 2020), Coronavirus response: Banki ng Package to facilitate bank lending - Supporting households and
businesses in the EU
10
European Commission COM(2020)169, (28 April 2020), Communication from the Commission to the European Parliament and the
Council: “Commission Interpretative Communication on the application of the accounting and prudential frameworks to facilitate EU bank
lending - Supporting businesses and households amid COVID-19”
4FOR PUBLICATION
European Commission Services European Central Bank Single Resolution Board
The legislative proposal 11 puts forward exceptional temporary measures in order to
maximise the ability of EU banks to lend during the COVID-19 pandemic, while also
ensuring their continued resilience. With respect to banks’ risk-based capital positions
the proposed measures entail:
adapting the transitional period for mitigating the impact of IFRS 9 provisions
on CET 1 capital; and
advancing the date of application of the revised supporting factor for small and
medium-sized enterprises (SMEs) and the new infrastructure supporting
factor, as well as for the preferential treatment of loans backed by pensions or
salaries and of certain software assets.
In the majority of MS (BE, CZ, BG, DE, DK, FR, IE, LT and SE)12, macroprudential buffers
such as the countercyclical capital buffer (CCyB) have been released or pending increases
have been halted in order to safeguard the supply of credit to the real economy at the current
juncture. Regarding the systemic risk buffer (SyRB), IE decided to defer its implementation
and some MS decided to reduce the level of currently active SyRBs (EE, FI, NL, HU and
PL).13
11
European Commission COM(2020)310 (28 April 2020), Proposal for a Regulation of the European Parliament and of the Council
amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic.
12
In March SE (2.5%), DK (1%), IE (1%), LT (1%), the UK (1%) and FR (0.25%) fully released (or have announced they would) their
already implemented CCyBs to 0% and, where app licable, cancelled any pending increases. BG has reduced its CCyB rate from 1.5% to
0.5% and CZ first cancelled the pending increase from 1.75% to 2% and subsequently reduced its CCyB to 1%. BE and DE cancelled
their upcoming CCyB rates of 0.5% and 0.25%, respectively, leaving only LU and SK where no policy change in respect to their CCyB
has been announced.
13
FI and NL also decided to reduce buffer rate for two banks designated as other systemically important institutions (O -SIIs), for
consistency with the SyRB reduction, as the SyRB was mainly applied to target systemic importance. Some MS have extended or a re
considering whether to extend the transition period for the application of OSII buffers (CY, GR, LT and PT).
5FOR PUBLICATION
European Commission Services European Central Bank Single Resolution Board
Quantitative indicators
Fully loaded Common Equity Tier 1 (CET1) capital ratio : Ratio of fully loaded CET1
capital/total risk-weighted assets (RWAs) (Indicator 1: Charts 1.1 and 1.2)14
Fully loaded Tier 1 (Tier 1) capital ratio: Fully loaded Tier 1 capital/total RWAs (Indicator
2: Charts 2.1 and 2.2)15
Fully loaded total capital ratio: Fully loaded total capital/total RWAs (Indicator 3: Charts
3.1 and 3.2)16
Commentary
CET1 capital ratio. From the end of 2014, the BU weighted average CET1 ratio improved
by 3.6 pp to 14.5% in Q4 2019. The ratio increased by 0.5 pp between Q2 2019 and Q4
2019.
CET1, Tier 1 and total capital ratios. CET 1 and Tier 1 ratios continued to increase while
total capital ratios remained broadly stable 17 (Charts 1.1, 2.1, and 3.1).
MS-specific developments – long-term trends. The overwhelming majority of MS
continued to increase their CET1 positions in the period between Q4 2014 and Q4 2019, with
the greatest increases occurring in IE (+9.8 pp), BE (+9.0 pp), GR (+8.0 pp) and PT (+6.7
pp). LU, LV and SK showed decreases in their CET 1 ratios of -1.3 pp, -3.1 pp and -2.4 pp
respectively, although LU and LV continue to show the highest CET1 ratios in the cohort
despite these reductions (19.3% and 20.4% respectively) 18.
MS-specific developments – half-yearly trends. With the exception of LU, LV, and SK,
whose CET1 ratios decreased, CET1 ratios for the majority of MS either stayed stable (AT,
EE, ES, FR, IE, NL, SI) or increased slightly (BE, CY, DE, FI, GR, IT, MT and PT) in Q4 2019
compared to Q2 2019.
14
The CET1 capital ratio indicates the extent to which an institution can absorb losses on a going concern basis using CET1 cap ital
resources.
15
The Tier 1 capital ratio indicates the extent to which an institution can absorb losses on a going concern basis using Tier 1 capital
resources (i.e. CET1 and additional Tier 1 capital resources).
16
The total capital ratio indicates the extent to which an institution can absorb losses on a going concern basis using total capital resources
(i.e. CET1 and additional Tier 1 capital resources as well as Tier 2 capital).
17
The drop in Q1 2018 capital figures was mainly due to a reduction in CET1 capital, which in turn was driven by “accumulated other
comprehensive income” and “retained earnings” (and also linked to the IAS39/IFRS9 migration as a number of firms chose to take the full
deduction rather than making use of the transitional arrangements).
18
Please note that, due to confidentiality concerns, EE and LT have been excluded from this analysis.
6Indicator 1: Fully loaded CET1 capital ratio
Chart 1.1: Fully loaded CET1 capital ratio – evolution in the BU Chart 1.2: Fully loaded CET1 capital ratio by MS
30%
25%
20%
15%
10%
5%
0%
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
Source: ECB staff contribution, COREP and ECB calculations. See methodological notes in Annex III.
Indicator 2: Fully loaded Tier 1 capital ratio
Chart 2.1: Fully loaded Tier 1 capital ratio – evolution in the BU Chart 2.2: Fully loaded Tier 1 capital ratio by MS
Source: ECB staff contribution, COREP and ECB calculations. See methodological notes in Annex III.
7Indicator 3: Fully loaded total capital ratio
Chart 3.1: Fully loaded total capital ratio – evolution in the BU Chart 3.2: Fully loaded total capital ratio by MS
23%
30%
21%
25%
19%
20%
17%
15%
15%
10%
13%
5%
11%
0%
9% AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, COREP and ECB calculations. See methodological notes in Annex III.
82. Leverage
COVID-19 measures
The legislative proposal19 put forward by the Commission on 28 April 2020 in order to
maximise the ability of EU banks to lend during the COVID-19 pandemic, while
ensuring their continued resilience, includes the following amendments with respect to
the leverage ratio:
Postponing the date of application of the new leverage ratio buffer requirement
that is part of the final elements of the Basel III reform; and
Adjusting the conditions for excluding certain exposures to central banks from
the leverage ratio exposure measure.
Structural measures
The risk reduction package20, published in June 2019 21, introduces a binding leverage
ratio to prevent institutions from accumulating excessive leverage as well as a leverage
ratio buffer requirement for institutions qualifying as global systemically important
institutions (G-SIIs). The leverage ratio is intended to reinforce the risk-based capital
requirements with a simple, non-risk-based backstop.
Quantitative indicator
Fully loaded leverage ratio: Ratio of fully loaded Tier 1 capital/total leverage ratio
exposure22, as per Capital Requirements Regulation (CRR)/Capital Requirements
Directive (CRD) definitions reported in the European Banking Authority (EBA)
Implementing Technical Standards (ITS) on supervisory reporting (Indicator 4, Charts
4.1 and 4.2).23
Commentary
Fully loaded leverage ratio. As highlighted above, banks have, on average, reduced
their leverage by 1.5 pp, with the average fully loaded leverage ratio improving from
4.0% in Q4 2014 to 5.5% in Q4 2019.
MS-specific developments. The aggregate leverage ratio increased in most MS
compared to Q4 2014. For jurisdictions where the leverage ratio decreased (CY, LV
and SK), the absolute figures of 8.0%, 9.0% and 7.0% respectively are above the Single
Supervisory Mechanism’s (SSM) average of 5.5%.
19
European Commission COM(2020)310 (28 April 2020), Proposal for a Regulation of the European Parliament and of the Council
amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID -19 pandemic.
20
For an overview of the key elements of the risk reduction package, please see Ann ex I.
21
Regulation (EU) 2019/876 was published in the Official Journal of the EU on 7 June 2019 and entered into force 20 days later.
22
The exposure measure includes both on-balance sheet exposures and off-balance sheet items. On-balance sheet exposures
are generally included at their accounting value, although exposures arising from derivative transactions and securities financing
transactions are subject to separate treatment (in essence, amounts owed to a bank are excluded while any on -balance sheet
collateral related to such transactions is included).
23
The fully loaded leverage ratio indicates the level of dependence on either shareholder or external financing for usual financing
activities as defined by the institution’s business model. This ratio uses Tier 1 capital to judge how leveraged a bank is in relation
to its consolidated assets. The higher the leverage ratio, the greater the resilience to shocks af fecting a bank’s balance sheet.
9Indicator 4: Leverage ratio
Chart 4.1: Fully loaded leverage ratio – evolution in the BU Chart 4.2: Fully loaded leverage ratio by MS
9%
14%
8%
12%
7%
10%
6%
8%
5%
6%
4% 4%
3% 2%
2% 0%
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, COREP, ECB calculations. See methodological notes in Annex III.
103. Liquidity and funding position
COVID-19 measures
As part of its measures announced on 12 March 24 to ensure continued funding of the
real economy amid the COVID-19 pandemic, the ECB encouraged its directly
supervised banks to make use of the flexibility provided in the regulation, according to
which, banks can make use of their liquid assets during times of stress, even if this may
result in their liquidity coverage ratio (LCR) falling below 100%.
Structural measure
The risk reduction package25, published in June 2019 26, introduces a binding Net Stable
Funding Ratio (NSFR) to address previous excessive reliance on short-term wholesale
funding and to reduce long-term funding risk.
Quantitative indicators
LCR: Ratio of liquidity buffer/net liquidity outflow (Indicator 5: Charts 5.1 and 5.2)27
Basel III NSFR: Ratio of available stable funding (ASF)/required stable funding (RSF)
(as reported in the SSM’s Short-Term Exercise (STE)) (Indicator 6: Charts 6.1 and
6.2)28
Commentary
LCR. On a BU aggregate level, the mean and median weighted average LCR figures
have been above the minimum requirement of 100% since the start of the reporting
period in Q4 2014.
NSFR. On a BU aggregate level, the median and the weighted average NSFR figures
have been above the forthcoming minimum requirement of 100% since the first
reporting point in Q4 2014 and the weighted average has improved further by 11.1 pp
to 113.0% since then.
MS-specific LCR and NSFR developments. All MS met the forthcoming minimum
LCR and NSFR requirements of 100% in Q4 2019.
24
ECB (12 March 2020), ECB Banking Supervision provides temporary capital and operational relief in reaction to coronavirus
25
For an overview of the key elements of the risk reduction package, please see Annex I.
26
Regulation (EU) 2019/876 was published in the Official Journal of the EU on 7 June 2019 and entered into force 20 days later.
27
The LCR indicates whether an institution has an adequate stock of unencumbered high -quality liquid assets (HQLA) that can
be converted into cash with little or no loss of value in pri vate markets, to meet its liquidity needs for a 30 calendar-day liquidity
stress scenario.
28
The NSFR indicates the ASF (calculated using liabilities) as a percentage of the RSF (calculated using assets). Numbers shown
in this document reflect the calibration according to the Basel NSFR standards and do not consider the specificities of the NSFR
implementation in the EU (e.g.: 0% required stable funding factor for Level 1 securities, lower required stable funding factors for
short-term transactions with financial customers, broader set of assets recognised as received variation margin in relation to
derivative assets).
11Indicator 5: LCR
Chart 5.1: LCR – evolution in the BU Chart 5.2: LCR by MS
240%
600%
220%
200% 500%
180%
400%
160%
300%
140%
200%
120%
100% 100%
80%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
0%
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2018Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, COREP, STE and ECB calculations. The figures for Greek banks should be interpreted carefully as external factors are hindering the use of the LCR as a measure of
progress on risk reduction for these banks. See methodological notes in Annex III.
Indicator 6: NSFR
Chart 6.1: NSFR – evolution in the BU Chart 6.2: NSFR by MS
140%
180%
130% 160%
140%
120% 120%
100%
110% 80%
60%
100% 40%
20%
90% 0%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, STE, ECB calculations. The values for Austria, Belgium, Germany, Ireland, Italy, Malta and th e Netherlands in 2014 Q4 might be affected by missing data for a small
number of banks. See methodological notes in Annex III
124. MREL
COVID-19 measures
In the current situation caused by the COVID-19 pandemic, the SRB is committed to
ensuring that short-term MREL constraints do not prevent banks from lending to
businesses and the real economy. The SRB has been working with the banks under its
remit and national resolution authorities to prepare for the implementation of the 2020
resolution planning cycle (RPC), including, changes to MREL decisions relating to the
revised Bank Recovery and Resolution Directive (BRRD II or Directive (EU) 2019/879)
and the revised Single Resolution Mechanism Regulation (SRMR II or Regulation (EU)
2019/877). As part of this cycle, new MREL targets will be set according to the transition
period set out in SRMR II. The decisions will be based on recent MREL data, and reflect
changes in the capital requirements as part of the crisis response.
With regards to existing binding MREL targets (set in the 2018 and 2019 cycles), in the
current crisis, the SRB intends to take a forward-looking approach to banks that may
face difficulties meeting those targets before new decisions take effect (with 2022
intermediate targets), while making use of the flexibility already embedded in the
framework. The SRB’s focus will be on the 2020 decisions and targets, and banks have
been asked to continue to make all efforts to provide the necessary data on MREL for
the upcoming cycle. This approach was chosen to provide banks with flexibility during
the COVID-19 crisis while ensuring a level playing field.
In addition, the EBA has published a series of relief measures on recovery planning 29
and on the remittance dates for non-critical reporting by banks to the resolution
authorities and Pillar 3 disclosures.30
Structural measures
Progress made to date:
The SRB’s 2020 MREL policy implementing the new rules introduced by the BRRD II
and SRMR II was published in May 2020 31.
SRB Addendum to the 2018 MREL policy on new CRR requirements 32 published
in June 2019, setting out the implementation policy for the total loss absorbing capacity
(TLAC) requirement which had become applicable on 27 June 2019.
SRB’s “Expectations for banks”33 setting out the capabilities the SRB expects banks
to demonstrate in order to show that they are resolvable, published on 1 April 2020.
The risk reduction package, 34 published in the Official Journal on 7 June entered into
force on 27 June 2019. This package represents an important step towards the
29
EBA (22 April 2020), EBA provides further guidance on the use of flexibility in relation to COVID-19 and calls for heightened
attention to risks.
30
EBA (31 March 2020), EBA provides additional clarity on measures to mitigate the impact of COVID-19 on the EU banking
sector.
31
SRB (May 2020), SRB MREL policy under the Banking Package.
32
SRB (June 2019), Addendum to the SRB 2018 MREL policy on new CRR requirements. This addendum sets out the SRB’s
implementation policy with regards to the TLAC requirement.
33
SRB (April 2020), Expectations for banks.
34
As part of the Risk reduction package published in the Official Journal of the EU (OJEU) in June 2019, Regulation (EU) 2019/876,
Regulation (EU) 2019/877 and Directive (EU) 2019/879 implement a minimum TLAC requirement for E U G-SIBs (applicable as
of 27 June 2019) and a revision of the MREL requirement for all banks with strengthened eligibility and subordination criteri a
(applicable upon transposition, from 28 December 2020). For an overview of the key elements of the risk r eduction package,
please see Annex I.
13RESTRICTED
completion of the European post-crisis regulatory reforms and a response to the June
2016 ECOFIN Council invitation to further reduce risks in the financial sector.
Ongoing:
The SRB has almost finalised the 2019 RPC. In this context, the SRB expanded the
scope of banks subject to MREL binding decisions and updated the MREL requirement
for a set of banks which already received a target in 2018 RPC. Overall, in 2018 and
2019 RPC, the SRB set MREL binding decision for 94 resolution groups at consolidated
level.
Starting from the 2020 RPC, a twelve-month timeline will be applicable to all banks, i.e.
with or without resolution colleges (RC), to ensure consistent treatment of all
institutions and decisions based on the previous year-end. In the 2020 cycle, the SRB
expects to approve 117 resolution plans, covering all banking groups under its remit.
Regulatory and implementing technical standards are being developed by the EBA
in accordance with the mandates provided by the BRRD II/CRR2 and under a revised
timeline agreed with the Commission.
Quantitative indicators 35
MREL targets: MREL consolidated target and subordinated requirement, expressed
as a percentage of the total risk exposure amount (TREA) per MS ( Indicator 7: Chart
7.1 and for G-SIIs Chart 7.2).
Outstanding MREL-eligible liabilities: Outstanding stock of MREL-eligible
subordinated and non-subordinated liabilities, (including own funds instruments),
expressed as a percentage of the TREA per MS (Indicator 8: Chart 8.1) and for G-
SIIs (Indicator 8: Chart 8.2).
MREL shortfalls: Computed as the difference between the MREL target and the
outstanding stock of MREL-eligible liabilities, including the part of the shortfall to be met
with subordinated eligible liabilities, expressed as a percentage of the TREA and EUR
billion per MS (Indicators 9 and 10: Charts 9.1, 9.2, 10.1 and 10.2).
35
For further details of data composition, please see Annex III.
14RESTRICTED
Commentary
General remarks. The analysis below does not take into account the provisions in
BRRD II/SRMR II since they are not yet applicable. The data presented in this report
were taken at a cut-off date of 31 December 2018, the same as in the previous
November 2019 report. However they reflect certain developments such as: in the
sample of banks considered, the outstanding level of eligible liabilities, and, in some
cases, revisions of MREL targets, which are relevant for the cut-off date but became
known after the date of the previous report.
MREL targets. By the end of Q2 2020, the SRB expects to finalise the adoption of
MREL targets at consolidated level for 33 “priority” banks, for which resolution plans
have been or will be adopted under the 2019 planning cycle. Taking into account the
decisions for these banks, along with the decisions taken under the 2018 RPC, 36 which
are still binding for the remainder of the sample, the MREL targets represent on
average 25.1% TREA, equal to €1,830 billion 37, compared with €1,759 billion reported
in the November 2019 joint report. The SRB also requires (or expects, for banks without
colleges still subject to a target set during the 2018 RPC) an average amount of 18.2%
TREA to be met with subordinated instruments (€1,322 billion compared with €1,243
billion in the previous report). When considering G-SIIs only, for which the targets were
not updated in the 2019 RPC, the average MREL target equals 25.8% TREA with an
average subordinated requirement of 19.9% TREA, i.e. higher than the average targets
of non-G-SII banking groups.
Outstanding stock of MREL-eligible liabilities (including own funds instruments).
The stock of MREL-eligible liabilities including own funds for banks within SRB’s remit
accounted for an average of 28.6% TREA (€2,081 billion) in Q4 2018, compared with
28.5% TREA (€1,987 billion) at the same date as outlined in the November 2019 report.
The increase in euro nominal amounts is mainly driven by the inclusion of additional
banks in the analysis sample. Subordinated liabilities account for a substantial share of
eligible liabilities, with an average of 23.2% TREA (€1,693 billion compared with €1,627
billion at the same date, as previously reported). In some MS, the share of subordinated
MREL-eligible liabilities is significant, either due to the recognition of statutory or
structural subordination, or the banks’ funding model. When considering G -SIIs only,
the average amount of MREL-eligible instruments is equal to 25.8% TREA, and 22.3%
TREA for subordinated MREL-eligible instruments.
MREL shortfalls. Based on the data presented in this report, banks in the majority of
the 18 MS present a shortfall. The average MREL shortfall was equal to 1.9% TREA in
Q4 2018 compared with 2.0% TREA in the previous report. In absolute amounts, the
total shortfall was equal to €135.7 billion in Q4 2018 compared with €137.1 billion at
the same date, as previously reported. The decrease in the shortfall is due to: i) the
reduction of the MREL target for several banks whose targets were recalibrated in 2019
as a result of the progressive de-risking process that occurred in 2018; and ii) the
updated data on eligible liabilities, which were made available after the November 2019
report. This decrease outweighs the negative contribution to the shortfall of banks that
received a target for the first time in the 2019 RPC. The average shortfall is higher than
36
The decisions adopted under the 2018 RPC were already taken into consideration in the November 2019 report.
37
The data related to some targets were aligned with the decisions, which were not available at the time of the drafting of the
November 2019 report.
15RESTRICTED
5% TREA only in few MS. Furthermore, the subordinated component of the MREL
shortfall is limited to, and accounts for, 0.2% TREA on average. As of 31 December
2018, total MREL funding needs 38 represented approximately 7.4% of the total
consolidated MREL target, down from 7.8% at the same date in the previous report.
Qualitative assessment
Resolution planning. The SRB has made progress in resolution planning, expanding
the scope of the banks covered by plans and increasing the number of banks subject
to MREL binding targets at consolidated and individual level. In addition, the SRB
published its 2020 Work Programme, setting out its priorities and cor e tasks for the
year ahead.
The impact of the introduction of the Banking Package will be factored into the SRB
resolution planning cycles: already in 2019 with statutory requirements for G -SIIs, and
through the SRB 2020 MREL policy.
Resolvability and preparedness. In its policy document detailing its “Expectations for
Banks”, the SRB outlines best practice on key aspects of resolvability and sets out a
roadmap with general phase-in dates for compliance with the various dimensions. Over
the next four years, banks are expected to develop full capabilities in a number of areas,
including governance, MREL capacity, development of bail-in playbooks, liquidity and
funding in resolution, operational continuity and access to financial market
infrastructures, updating management information systems for bail-in execution and
valuation as well as communication plans, separability and restructuring, as
appropriate.
38
Calculated as total shortfall over total target.
16Indicator 7: MREL target
Chart 7.1: MREL targets (of which subordinated), % TREA Chart 7.2: MREL targets (of which subordinated), % TREA – BU G-SIIs
40%
40%
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5% 5%
0% 0%
8 4 3 17 13 9 4 12 3 4 4 3 10 Bank_1 Bank_2 Bank_3 Bank_4 Bank_5 Bank_6 Bank_7 Bank_8 Bank_9
AT BE CY DE ES FR GR IT LU NL PT SI Others
MREL target (%TREA) MREL subordinated target (%TREA) MREL target (%TREA) MREL subordinated target (%TREA)
Source: SRB staff contribution and calculations. See methodological notes in Annex III.
Indicator 8: MREL-eligible liabilities
Chart 8.1: MREL-eligible liabilities (of which subordinated), % TREA Chart 8.2: MREL-eligible liabilities (of which subordinated), % TREA – BU G-
SIIs
40% 40%
35% 35%
30% 30%
25% 25%
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
8 4 3 17 13 9 4 12 3 4 4 3 10 Bank_1 Bank_2 Bank_3 Bank_4 Bank_5 Bank_6 Bank_7 Bank_8 Bank_9
AT BE CY DE ES FR GR IT LU NL PT SI Others
Eligible Liabilities (%TREA) Subordinated Eligible Liabilities (%TREA) Eligible Liabilities (%TREA) Subordinated Eligible Liabilities (%TREA)
Source: SRB staff contribution and calculations. See methodological notes in Annex III.
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Indicator 9: MREL shortfalls
Chart 9.1: MREL shortfalls, % TREA Chart 9.2: MREL shortfalls, % TREA – BU G-SIIs
40% 40%
35% 35%
30% 30%
25% 25%
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
8 4 3 17 13 9 4 12 3 4 4 3 10 Bank_1 Bank_2 Bank_3 Bank_4 Bank_5 Bank_6 Bank_7 Bank_8 Bank_9
AT BE CY DE ES FR GR IT LU NL PT SI Others
Eligible Liabilities (%TREA) Shortfall (%TREA)
Eligible Liabilities (%TREA) Shortfall (%TREA)
Source: SRB staff contribution and calculations. See methodological notes in Annex III.
Indicator 10: MREL subordinated shortfalls
Chart 10.1: MREL subordinated shortfalls, % TREA Chart 10.2: MREL shortfalls (of which subordinated), EUR bn
40% 35
35% 30
30%
25
25%
20
20%
15
15%
10
10%
5
5%
0
0% 8 4 3 17 13 9 4 12 3 4 4 3 10
8 4 3 17 13 9 4 12 3 4 4 3 10
AT BE CY DE ES FR GR IT LU NL PT SI Others
AT BE CY DE ES FR GR IT LU NL PT SI Others
MREL Shortfall (in EUR bn) MREL subordinated Shortfall (in EUR bn)
Subordinated Eligible Liabilities (%TREA) Subordinated Shortfall (%TREA)
Source: SRB staff contribution and calculations. See methodological notes in Annex III.
185. NPLs
COVID-19 measures
The legislative proposal39 put forward by the Commission on 28 April 2020 in order to
maximise the ability of EU banks to lend during the COVID-19 pandemic, while
ensuring their continued resilience, would introduce a more favourable treatment under
the NPL backstop rule of loans that are subject to public guarantees granted in the
context of COVID-19.
As part of its measures announced on 20 March 40, the ECB has introduced supervisory
flexibility for the treatment of NPLs, particularly to allow banks to fully benefit from
guarantees and moratoria put in place by public authorities to tackle the current
distress. In addition, the ECB recommended, within its prudential remit, that all banks
avoid pro-cyclical assumptions in their models to determine provisions and that banks
that have so far not done so should opt for the IFRS 9 transitional rules.
Structural measures
Legislative proposals (“NPL package”). In March 2018 the Commission proposed
legislative measures on NPLs that aim to speed up progress already made in reducing
NPLs and prevent their renewed build-up.
The proposed regulation introducing common minimum coverage levels
for newly originated exposures that become non -performing (“Pillar 1
prudential backstop”) entered into application in April 2019 41. It requires
banks to set aside sufficient funds to cover the risks associated with future non-
performing exposures. To ensure legal certainty and consistency in the
prudential framework, the Regulation also introduces a common definition of
non-performing exposures (NPE), in line with the one already used for
supervisory reporting purposes.
The proposal for a directive on credit servicers, credit purchasers and the
recovery of collateral will provide banks with an efficient out-of-court value
recovery mechanism for secured loans and will encourage the development of
secondary markets where banks can sell their NPLs to investors and make use
of specialist credit servicers. Deliberations in the European Parliament are
ongoing.
National legislative measures. Several EU MS have adopted or amended legislation
with the aim of reducing NPLs (see Annex II). About half of the MS have implemented
legal reforms relating to insolvency and foreclosure ( CY, GR, ES, IT, IE, LV, HU, PT
and SK), the cooperative or savings bank sectors (ES, IT and LT), legislation governing
new sales of loans legislation (CY and IE) or the introduction of a subsidy scheme (CY).
Other measures
Asset Management Companies (AMC) blueprint. As part of the March 2018 NPL
package the Commission published a staff working document providing non-binding
39
European Commission COM(2020)310 (28 April 2020), Proposal for a Regulation of the European Parliament and of the Council
amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic.
40
ECB (20 March 2020), ECB Banking Supervision provides further flexibility to banks in reaction to coronavirus
41
Regulation (EU) 2019/630 was published in the Official Journal of the EU on 25 April 2019 and entered into application one day
later.
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technical guidance (a so-called “blueprint”) on how national asset management
companies (AMCs) can be set up.
EU-wide NPE guidelines. Based on the ECB’s guidance to SSM banks
on NPLs the EBA issued guidelines on the management of n on-performing and
forborne exposures in October 2018. The objective of these guidelines is to achieve
effective and efficient management of exposures, as well as a sustainable reduction in
the amount of NPLs in banks’ balance sheets.
Supervisory expectations on NPL provisioning. In March 2018, the ECB published
an Addendum to its qualitative NPL guidance specifying the ECB’s supervisory
expectations as regards prudent levels of provisions for exposures that become non -
performing from 1 April 2018 onwards. Moreover, the ECB announced in July 2018 that
it would engage with each supervised institution to define supervisory expectations with
regard to the stock of NPLs with the aim of achieving consistent coverage of NPL stock
and flow over the medium term. Following the adoption of the Pillar 1 prudential
backstop, on 19 August 2019 the ECB revised its supervisory expectations for
prudential provisioning for new NPEs in order to enhance the consistency and simplicity
of the overall approach taken.
Enhanced disclosure requirements on asset quality and NPEs for all EU banks.
Based on the ECB’s NPL guidance, in December 2018 the EBA published guidelines
specifying a common content and uniform disclosure formats on information on NPEs,
forborne exposures and foreclosed assets that banks should disclose.
Improved loan tape information. In order to strengthen data infrastructure with regard
to uniform and standardised data for NPLs, the EBA issued templates on loan tape
monitoring in December 2017 and updated them in September 2018. These
standardised NPL templates are not part of supervisory reporting, but banks and
investors are encouraged to use them in their transactions.
Union-wide NPL transaction platform. The Commission is continuing to facilitate
progress towards the emergence of Union-wide NPL transaction platforms. The
Commission has been working with private-sector stakeholders to enable the
development of industry standards that would govern such platforms, i.e. developed by
the industry itself.
EU-wide guide lines on loan origination and monitoring. As a follow-up to the
ECOFIN Council’s “Action plan to tackle non-performing loans in Europe” 42, in June
2019 the EBA issued draft guidelines on loan origination and monitoring for
consultation. Learning from the elevated levels of NPEs across the EU in recent years,
the draft guidelines aim to ensure that institutions have robust and prudent standards
for credit risk taking, management and monitoring, and that newly originated loans are
of high credit quality. The draft guidelines also aim to ensure that the institutions'
practices are aligned with consumer protection rules and anti-money laundering
requirements.
Quantitative indicators
42
The Action Plan was adopted in July 2017. See Council conclusions on Action plan to tackle non -performing loans in Europe.
20RESTRICTED
Gross NPE ratio: Ratio of gross NPEs43/total gross loans, advances and debt
securities (Indicator 11: Charts 11.1 and 11.2)
Gross NPL ratio: Ratio of gross NPLs and advances 44/total gross loans and advances
(Indicator 12: Charts 12.1 and 12.2)
Net NPL ratio: Ratio of NPLs and advances net of allowances and credit risk
adjustments to total net loans and advances (Indicator 13: Charts 13.1 and 13.2)
NPL coverage ratio: Ratio of accumulated allowances and credit risk
adjustments/total gross NPLs 45 (Indicator 14: Charts 14.1 and 14.2)
Collateral coverage ratio: Ratio of collateral received for non-performing loans and
advances to total gross NPLs 46 (Indicator 15: Charts 15.1 and 15.2)
Commentary
NPE, NPL and net NPL ratio. There has been progress in reducing NPEs, NPLs and
the net NPL ratio both in terms of weighted average and across the whole distribution
since Q4 2014.47 For the period between Q2 2019 and Q4 2019, the reduction in the
respective ratios was driven by both a reduction in the stock of NPLs (the numerator)
and a reduction in the amount of total loans (the denominator) over the same period,
with the impact of the nominator outweighing the impact of the denominator.
MS-specific developments for NPEs, NPLs and net NPL ratios.
Long-term trends. In Q4 2019, all jurisdictions reported reductions in their
NPE, NPL and net NPL ratios compared with Q4 2014, with the largest
reductions stemming from jurisdictions which initially reported the highest levels
of NPLs (CY, IE, IT and PT).
Short-term trends. With the exception of LV, whose NPL ratio increased
moderately by 0.9 pp to 3.8%, MS reported largely unchanged or slightly
improved NPE, NPL and net NPL ratios. As of Q4 2019, GR reported the largest
decrease in the NPL ratio of its peer group of -4.1 pp; GR and CY are now the
only jurisdictions with NPL ratios above 10%.
Weighted average NPL coverage ratio. The weighted average NPL coverage ratio
stayed largely unchanged and now stands at 45.9%. After peaking in Q1 2018 (due to
both an increase in allowances and a decrease in NPLs with respect to the previous
quarter), the value fell slightly over the last five quarters, while still being 1.7 pp higher
than the Q4 2014 value.
43
The gross NPE ratio indicates the credit risk arising from loans, advances and debt securities. Loans, advances and debt
securities are reported gross of allowances and credit risk adjustments.
44
The gross NPL ratio indicates the credit risk arising from loans and advances. Non-performing loans and advances are reported
gross of allowances and credit risk adjustments.
45
The NPL coverage ratio indicates the extent to which losses on NPLs are covered by provisions.
46
The collateral coverage ratio indicates the extent to which NPLs are secured by collateral such as movable and immovable
property, amongst others.
47
In particular, the interquartile range (25th to 75th percentiles) has narrowed for all three measures, whi ch was mainly attributable
to the large decrease observed for the 75th percentile.
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MS-specific developments for average NPL coverage ratio.
Long-term trends. Out of the 14 MS in the sample in Q4 2014, there were
improvements in coverage for eight MS over the period ending in Q4 2019,
including several high-NPL countries (CY, IT and PT), while IE and NL recorded
the largest declines in average coverage over the period.
Short-term trends. Compared to Q2 2019, nine MS (BE, CY, EE, FI, IE, IT,
LU, LV and NL ) reported increases in the average NPL coverage ratio, four MS
ratios remained unchanged (DE, ES, FR and MT) and five MS reported
decreases in the average NPL coverage ratio (AT, GR, PT, SI and SK).
Collateral coverage ratio. The percentage of NPLs covered by collateral decreased
from 40.0% in Q4 2014 to 34.6% in Q4 2019, which in turn led to a larger percentage
of unsecured NPL exposures.
MS-specific developments for the collateral coverage ratio.
Long-term trend. Out of the 14 MS in the sample in Q4 2014, five have seen
an increase in collateral coverage over the period ending in Q4 2019, while the
other nine have seen declines.
Half-yearly trend. Out of the 18 jurisdictions in the sample, EE, IE and FI
reported the largest collateral coverage ratios with 55.1%, 58.3% and 60.7%
respectively. In terms of changes compared to June 2019, nine MS saw
reduced collateral coverage ratios in Q4 2019 compared to Q2 2019 (AT, CY,
EE, IT, LU, LV, MT, NL and PT), with the greatest reductions occurring in LV (-
15.1%), MT (-6.5%) and LU (-4.5%). Five MS saw their ratios largely unchanged
(DE, ES, FI, FR and SK) and four reported increases (BE, IE, GR and SI).
Qualitative assessment
NPL reduction initiatives. More than half of the MS have implemented reforms in this
area, with measures relating to, for example, sales of NPLs (DK, GR, ES, IT, CY, RO),
transfers of legacy assets to external AMCs (CY, DK, ES, IE and HU), and
improvements to arrears management and NPL workouts in banks (BG, DE, EE, ES,
CY, LT, LV, RO). Since October 2019, there has been ongoing work on an effective
transfer of NPLs to a newly created AMC (CY) while in December 2019, the legal
framework for the Greek Hercules asset protection scheme was adopted allowing
banks to securitise and transfer non-performing loans out of their balance sheets.
Secondary markets. Activity on secondary markets for NPLs continued to grow, albeit
less than expected, in MS with higher NPLs (IT, IE, ES, GR, CY and PT) until the
outbreak of the COVID-19 crisis. It remains to be seen to what extent the current crisis
will impact secondary markets for NPLs.
22Indicator 11: Gross NPE ratio
Chart 11.1: NPE ratio – evolution in the BU Chart 11.2: NPE ratio by MS
14%
50%
12%
45%
10% 40%
35%
8%
30%
25%
6%
20%
4%
15%
10%
2%
5%
0% 0%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2018Q2 2019Q2 2019Q4 2014Q4 2018Q2 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, FINREP and ECB calculations.
Indicator 12: Gross NPL ratio
Chart 12.1: NPL ratio – evolution in the BU Chart 12.2: NPL ratio by MS
18%
60%
16%
14% 50%
12%
40%
10%
8% 30%
6%
20%
4%
10%
2%
0% 0%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, FINREP and ECB calculations. NPLs and advances gross of allowances and credit risk adjustments to total gross loans and adjustments.
23Indicator 13: Net NPL ratio
Chart 13.1: Net NPL ratio – evolution in the BU Chart 13.2: Net NPL ratio by MS
12%
45%
10% 40%
35%
8%
30%
6% 25%
20%
4%
15%
10%
2%
5%
0% 0%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, FINREP and ECB calculations. Ratio of on-performing loans and advances net of allowances and other adjustments to total net loans and advances.
Indicator 14: NPL coverage ratio
Chart 14.1: NPL coverage ratio – evolution in the BU Chart 14.2: NPL coverage ratio by MS
60%
70%
55%
60%
50%
50%
45%
40%
40%
30%
35%
20%
30%
10%
25%
0%
20% AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, FINREP and ECB calculations. Accumulated allowances and credit risk adjustments to total gross NPLs. Source: FINREP, ECB calculations.
24RESTRICTED
Indicator 15: Collateral coverage ratio
Chart 15.1: Collateral coverage ratio – evolution in the BU Chart 15.2: Collateral coverage ratio by MS
60%
70%
50%
60%
40% 50%
30% 40%
30%
20%
20%
10%
10%
0% 0%
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
AT BE CY DE EE ES FI FR GR IE IT LT LU LV MT NL PT SI SK
2014Q4 2019Q2 2019Q4 2014Q4 2019Q2 2019Q4
25th-75th percentile Mean Median
Source: ECB staff contribution, FINREP and ECB calculations. Collateral received on non -performing loans and advances to total gross NPLs.
25RESTRICTED
Overview of annexes
Annex I provides an update on relevant legislative measures. This list includes both risk
reduction and risk sharing measures which are already in force or under negotiation.
Annex II presents details of other national measures that have been adopted in addition to
transposing agreed EU legislation. This list of national measures, which is not exhaustive,
provides details on some of the key measures covered by the semester country surveillance
reports. Where appropriate, MS are invited to send suggested updates to this table to the
following functional email address: FISMA-E2@ec.europa.eu.
Annex III contains the methodological notes covering data sources, the scope of the analysis,
time series samples, the metrics used, confidentiality criteria applied, the treatment of missing
data and caveats applied to the charts displayed.
Annex IV presents formulae with reference to the ITS data points used to compute the different
indicators.
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Annex I: State of play as regards selected EU banking legislative
measures relevant for risk reduction and risk sharing
Measure Description
Already agreed and in force
Introduces new definition of capital, credit valuation adjustment surcharge,
CRR/CRD IV
capital buffers, liquidity requirements, leverage ratio reporting and disclosure
including technical
requirements, stricter governance requirements (including limits on bonuses)
standards
and benchmarking of internal models for calculating capital requirements.
A single supervisory mechanism has been established, in order to (i) ensure
Single Supervisory
supervision of the highest quality, (ii) implement EU policy on prudential
Mechanism
supervision of credit institutions in a coherent and effective manner, and (iii)
Regulation (SSMR)
apply the single rulebook in a consistent manner.
The SSM became fully operational in 2014, with the ECB taking responsibility
Single Supervisory for supervising the most important banks in the euro area.
Mechanism (SSM) The SSM adopts measures aimed at addressing risks in the euro area
banking system and seeks to further reduce financial fragmentation.
Bank Recovery and
New rules are published in 2014 to manage the orderly recovery and
Resolution Directive
restructuring of banks that are failing or at risk of failing.
(BRRD)
Specifies the content of recovery plans, resolution plans and group resolution
plans, critical functions and core business lines/ex post contributions,
BRRD delegated exclusions from the application of write-down or conversion powers, MREL
acts (level 2 calibration methodology, methodologies and principles governing valuations,
legislation) and minimum elements of a business reorganisation plan.
Implementing Regulation on standardised formats and templates for
reporting.
New rules to manage the orderly recovery and restructuring of banks that are
Single Resolution
failing or at risk of failing in the euro area.
Mechanism
The legal provisions for the creation of a Single Resolution Fund are in place.
Regulation (SRMR)
The target date for the collection of contributions is 31 December 2023.
Deposit Guarantee
Scheme Directive New rules for the funding of deposit guarantee schemes.
(DGSD)
CRR/CRD delegated
Delegated acts amending the methodology for calculating the leverage ratio
acts on leverage
and introducing an LCR requirement.
ratio and LCR
Single Resolution The SRM has become operational, with a new EU agency, the SRB,
Mechanism (SRM) assuming responsibility for dealing with failing banks in the euro area.
Partial Adopted in December 2017.
harmonisation of Creation of a new class of senior non-preferred debt to facilitate compliance
bank creditor with subordinated requirements achieved through modifications to Article
hierarchy 108 of the BRRD.
Interpretation of existing supervisory powers aimed at addressing potential
under-provisioning of NPLs.
Blueprint on the setting-up of national AMCs.
Fostering of transparency and improvements to data infrastructure on NPLs.
Measures to
address NPLs Introduction of a statutory prudential backstop to prevent the build-up of
future NPLs without sufficient loan loss coverage and a common definition of
NPEs.
The amending Regulation entered into application in April 2019.
Risk reduction
Amendments to the CRR implementing the TLAC standard entered into
package – resolution
application in June 2019.
(TLAC)
Risk reduction Publication in OJEU in June 2019; transposition ongoing, with
package – resolution applicability after transposition.
27RESTRICTED
Measure Description
(BRRD/SRMR Amendments to the BRRD/SRMR to strengthen the level and quality of
review of MREL and MREL and implement the MREL allocation within groups (internal MREL).
other measures) Amendments to the BRRD with a view to harmonising moratorium tools and
ensuring more proportionate recognition of bail-in powers in third countries.
Publication in OJEU in June 2019; CRD transposition ongoing.
Amendments to the CRR/CRD to, inter alia, implement and finalise remaining
Basel reforms, including the introduction of:
- a binding leverage ratio;
Risk reduction
- a binding NSFR;
package – prudential
- more risk-sensitive capital requirements, particularly in the area of market
(CRR/CRD review)
risk, counterparty credit risk and exposures to central counterparties;
- more stringent large exposure limits for G-SIIs.
Amendments to enhance consolidated supervision (requirement for third-
country groups to set up an EU-based intermediate parent undertaking (IPU)
or authorisation requirements for (mixed) financial holding companies).
Publication in OJEU in June 2019; transposition ongoing.
Directive on preventive restructuring framework, second chances and
Insolvency law
measures to increase the efficiency of restructuring, insolvency and
discharge procedures.
Investment firms Publication in OJEU in December 2019.
Prudential banking supervision for large investment firms.
Proposed by the Commission
Proposal for a directive on credit servicers, credit purchasers and the
Measures to recovery of collateral; negotiations ongoing.
address NPLs Benchmarking of national loan enforcement (including insolvency) systems
from a bank creditor perspective.
Sovereign bond- An enabling framework for securities that allows for pooling and possibly
backed securities tranching of sovereign bonds from different MS.
(SBBSs)
European Deposit Proposal for a regulation to establish a European-wide deposit insurance
Insurance Scheme scheme.
(EDIS)
COVID-19 Banking Proposal on exceptional temporary and targeted amendments to the CRR to
Package maximise the ability of EU banks to lend during the COVID-19 pandemic,
while ensuring their continued resilience. The proposed changes entail:
- adapting and extending the transitional period for mitigating the impact of
IFRS 9 provisions on regulatory capital to counter the possible sudden
increase in provisions in the context of the COVID-19 pandemic;
- postponing the date of application of the leverage ratio buffer requirement
that is part of the final elements of the Basel III reform;
- introducing in the NPL backstop rule a more favourable treatment of
loans that are subject to public guarantees granted in the context of
COVID-19;
- easing the conditions for excluding central bank reserves from the
leverage ratio exposure measure; and
advancing the date of application for the revised supporting factor for SMEs
and the new infrastructure supporting factor, as well as for the preferential
treatment of loans backed by pensions or salaries and of certain software
assets.
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