LONDON (Reuters) – The European Union’s executive set out “quick fixes” on Tuesday to help banks step up the flow of credit to households and companies hit by the coronavirus pandemic.
The main points of the package:
The ratio is a measure of capital to a bank’s assets on a non-risk weighted basis. The European Commission will allow banks to exclude reserves held at central banks from the leverage ratio calculation for up to a year.
The aim is to free up room on bank balance sheets so they can lend more. It does not go as far as the U.S. Federal Reserve, which has proposed that banks can also exclude holdings of government bonds from the calculation.
LOAN LOSS PROVISIONS
Banks have to calculate provisions for loans turning sour by using a global accounting rule known as IFRS 9. The European Commission says the temporary inability of business to pay back loans due to the pandemic should not mean that banks have to automatically singificantly increase provisions.
Banks will get relief on any increase in expected new credit loss provisions they recognise in 2020 and 2021 incurred from January 1. It brings banks more in line with provisioning relief proposals that have been made by the Fed.
A new rule that allows banks not to deduct the value of software from capital will be brought forward by a year.
The supporting factor refers to lighter capital treatment to encourage loans to small and medium sized companies or for investing in infrastructure.
The implementation of a revised version of the factor for companies, and a new one for infrastructure, will be brought forward.
(Reporting by Huw Jones; Editing by Alexander Smith)