Regulation 2020/873 - Amendment of Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic - Main contents

EN

Official Journal of the European Union

L 204/4

Regulation (EU) No 575/2013 of the European Parliament and of the Council (4) establishes, together with Directive 2013/36/EU of the European Parliament and of the Council (5), the prudential regulatory framework for credit institutions and investment firms (‘institutions’) operating in the Union. Adopted in the aftermath of the financial crisis that unfolded in 2007-2008, and largely based on international standards agreed in 2010 by the Basel Committee on Banking Supervision (BCBS), known as the Basel III framework, that prudential regulatory framework has contributed to enhancing the resilience of institutions operating in the Union and to making them better prepared to deal with potential difficulties, including difficulties stemming from possible future crises.

Since its entry into force, Regulation (EU) No 575/2013 has been amended several times to address remaining weaknesses in the prudential regulatory framework and to implement some outstanding elements of the global financial services reform that are essential to ensuring the resilience of institutions. Among those changes, Regulation (EU) 2017/2395 of the European Parliament and of the Council (6) introduced transitional arrangements in Regulation (EU) No 575/2013 for mitigating the impact on own funds of the introduction of International Financial Reporting Standard – Financial Instruments (IFRS 9). Regulation (EU) 2019/630 of the European Parliament and of the Council (7) introduced in Regulation (EU) No 575/2013 a requirement for minimum loss coverage for non-performing exposures, the so-called prudential backstop.

Furthermore, Regulation (EU) 2019/876 of the European Parliament and of the Council (8) introduced in Regulation (EU) No 575/2013 some of the final elements of the Basel III framework. Those elements include, among other things, a new definition of the leverage ratio and a leverage ratio buffer, both of which prevent institutions from excessively increasing leverage, as well as provisions for the more favourable prudential treatment of certain software assets and for the more favourable treatment of certain loans backed by pensions or salaries, a revised supporting factor for loans to small and medium-sized enterprises (SMEs) (the ‘SME supporting factor’), and a new adjustment to own funds requirements for credit risk for exposures to entities that operate or finance physical structures or facilities, systems and networks that provide or support essential public services (the ‘infrastructure supporting factor’).

The severe economic shock caused by the COVID-19 pandemic and the exceptional containment measures have had a far-reaching impact on the economy. Businesses are facing disruption in supply chains, temporary closures and reduced demand, while households are confronted with unemployment and a drop in income. Public authorities at Union and Member State level have taken decisive action to support households and solvent undertakings in withstanding the severe but temporary slowdown...