LONDON (Reuters) – A panel of European Parliament members are set to back “quick fix” proposals on Monday to temporarily help banks step up the flow of credit to households and companies hit by the coronavirus pandemic.
The following measures have been agreed in cross-party compromises that parliament’s economic affairs committee will vote by email on Monday, with the result announced on Tuesday.
LOAN LOSSES
Banks have to calculate provisions for loans expected to turn sour, but they would not have to reflect the losses with capital increases during 2020 and 2021, and only gradual recognition from 2022 to 2024.
For the next seven years, any loan that has a state-backed guarantee would be exempt from increased capital requirements.
PRUDENTIAL FILTER
Introduction of a temporary “filter” for 2020 and 2021 that would ease the capital hit on banks arising from unrealised losses on government debt that occurred during extreme market volatility in the crisis.
LEVERAGE RATIO
The ratio is a measure of capital to a bank’s assets on a non-risk weighted basis. Banks could exclude reserves held at central banks from the leverage ratio calculation for up to a year to free up balance sheet room to lend more. State-backed loans could be excluded from leverage ratio calculation.
SOFTWARE INVESTMENTS
A rule change due in June 2021 that banks do not have to deduct the value of software investments from capital would be brought forward by a year.
SUPPORTING FACTOR
This refers to lighter capital treatment on banks’ loans to small companies and infrastructure. Start date brought forward by a year to June to aid recovery.
EURO BONDS ISSUED BY NON-EU STATES
Reintroduction of zero-risk weighting on banks’ holdings of sovereign bonds issued in the currency of another member state in the EU, to avoid punitive capital charges. Backdated to Jan. 1, 2020.
BONUSES AND DIVIDENDS
Linking the capital relief measures to curbs in banker bonuses and dividends to shareholders watered down to a token nod that encourages regulators to use existing powers.
WHAT NEXT?
Parliament has joint say on the package with EU states and final approval is expected this month in time for banks’ second-quarter earnings.
(Reporting by Huw Jones; Editing by Lisa Shumaker)
