Dear journalists, dear interested,
Today, I submitted Green amendments to the proposed “quick fix” adjustments of the banking rules to the corona crisis. The Commission had proposed a set of measures with the aim to reduce capital requirements for banks in the time of crisis. The socialist rapporteur Jonás Fernández has tabled a draft report to extend this relief to the banks.
The proposals by the Commission include a compensation for the effect of the new accounting rules (IFRS9) on financial instruments, which should prevent banks from having to set aside provisions for expected losses in the Corona crisis. In addition, publicly guaranteed loans are to be put on a temporary equal footing with export credit guarantees under the rules for non-performing loans (NPL prudential backstop). The application of the leverage ratio rules is to be postponed by one year as already agreed in the international Basel Committee on Banking Supervision. Central bank reserves are to be allowed to be excluded from the leverage ratio in times of crisis.
With our Green amendments, we call for another approach. The financial crisis has demonstrated that generosity to the banks does not lead to an effective provision of credit to the real economy. Losses and risks should not be hidden. If banks need additional capital this should be granted through equity investment by the private or as last resort the public sector with clear obligations when it comes to financing the real economy. Our amendments are guided by the following general ideas and principles:
- Public authorities have taken swift and decisive actions aimed at ensuring that banks can continue to fulfil their role in funding the real economy. The ECB supervisory arm and the EBA have in particular activated several embedded flexibilities foreseen in the legal framework and in particular the possibilities to operate temporarily below the capital conservation buffer and the countercyclical buffer, a full reduction of Pillar 2 guidance, a relief in the composition of capital for Pillar 2 Requirements, as well as operational flexibility in the implementation of bank-specific supervisory measures. Such measures come on top of the also far reaching monetary support provided to the banks and the shield provided to banks by Member States in the form of loan guarantees. It is therefore crucial to be cautious and targeted before considering any additional changes to the Banking Union rule book which was designed to be an ‘all weather’ legal framework providing appropriate safeguards to taxpayers.
- The general principle behind any additional change to be considered should be that any change should be targeted, strictly temporal (under sunset clause for instance). At least capital relief measures have to be matched by obligations for the banks in terms of distributions to dividends and AT1 instruments, share buybacks and bonuses.
- More specifically, it should be made clear that the treatment of publicly guaranteed loans under the NPL prudential backstop or any adjustment that may be proposed of the offsetting mechanism for central bank reserves should be temporary.
Our full set of amendments as submitted can be found here: https://sven-giegold.de/wp-content/uploads/2020/05/Greens-Amendments-CRR-quick-fix.pdf