Credit Institutions Directly Supervised by the Central Bank

Regulatory Requirements

In March 2020 the European Central Bank (ECB) and the European Banking Authority (EBA) announced a package of supervisory relief measures for credit institutions to ensure they could continue to fulfil their role in funding the real economy.

Following this, the Central Bank assessed where similar flexibility for credit institutions could apply to aspects of the regulatory framework under its remit.

On 28 July 2020, the ECB communicated its exit strategy from the supervisory relief measures taken at the outset of the COVID-19 pandemic. The Central Bank has also assessed the ongoing application of the aforementioned flexibility in the context of its regulatory framework and this is reflected below.

View details of the Central Bank's previous expectations for reference purposes only.

Postponement of Deadlines for Remedial Actions/Measures

In March 2020, the Central Bank applied a level of supervisory flexibility in relation to the deadlines for remedial actions/measures to ensure regulated entities could take the actions and steps needed to cope with significantly changed operational demands, to remain resilient, and to continue to serve their customers and the economy.

Individual firms could engage directly with their supervisor where they had difficulties in relation to meeting specific risk mitigation programme (RMP) submission dates. Supervisors assessed the circumstances and determined on a case-by-case basis whether a postponement, of up to 6 months, of such measures would be necessary in order to achieve the objectives stated above.

Given that the banking sector has shown operational resilience, the Central Bank now expects credit institutions to meet specific RMP submission dates. Should firms identify concerns in meeting these timelines they should engage in a timely manner with their usual supervisors.

Pillar 3 Disclosures

Credit institutions should assess the need for additional Pillar 3 disclosures on prudential information that may be necessary in order to properly convey the risk profile of the credit institution in the context of the COVID-19 pandemic.

When doing this assessment, credit institutions should take into account the extraordinary measures that competent authorities, central banks, national governments, and other EU bodies have announced to address the adverse systemic economic impact of the pandemic.

Additional Data Requests

Reliable supervisory reporting is crucial in times when the financial system faces many challenges caused by the COVID-19 pandemic. To examine the effects of COVID-19 on the financial sector, the Central Bank will require additional targeted information to be submitted by credit institutions during this period. We may need to do so in the future, depending on the evolution of the pandemic, although we aim to be measured and pragmatic in terms of the type and frequency of these requests. We expect credit institutions to continue to engage constructively with us and respond to such requests in an expedient manner.

ECB/SSM Announcements

Relief measures regarding capital and liquidity requirements

The Central Bank has actively participated in the Eurosystem and European System of Financial Supervision’s response to COVID-19. Accordingly, in line with the ECB announcement of 12 March 2020, and subsequent FAQs, the Central Bank has implemented a number of measures to provide its directly supervised credit institutions with flexibility in meeting certain capital and liquidity requirements.

Capital and liquidity buffers have been designed to support credit institutions to withstand stressed scenarios. Given the challenges presented by the COVID-19 pandemic, the Central Bank allows credit institutions to operate temporarily below the level of capital defined by the Pillar 2 Guidance (P2G), and to use the capital conservation buffer (CCB) to withstand potential stress.

The above measures provide significant capital relief to credit institutions to support the economy. Credit institutions should continue to apply sound underwriting standards, pursue adequate policies regarding the recognition and coverage of non-performing exposures, and conduct solid capital and liquidity planning and robust risk management. In line with the ECB announcement of 28 July, and subsequent FAQs, the Central Bank will not expect banks to operate above the level of their P2G any sooner than the end of 2022.

In line with the ECB announcement of 10 February 2022 and subsequent FAQs, the Central Bank will no longer permit credit institutions to operate below the level of capital defined by their P2G beyond 31 December 2022. As of 31 March 2022, the Central Bank has not extended the supervisory measure that allowed credit institutions to exclude central bank exposures from their leverage ratios (please see ‘Relief measures regarding credit institutions’ leverage ratio’ below).

The Central Bank also reported that substantial use could be made of LCR liquidity buffers in the context of the COVID-19 pandemic, even if this would have resulted in the LCR falling below the general 100% minimum level. The Central Bank clarified that it would not expect credit institutions, which have previously used their liquidity buffers, to once again comply with the general 100% minimum level any sooner than the end of 2021.

In view of credit institutions’ current liquidity buffers, as well as the liquidity available in the banking system, this liquidity relief is not being extended beyond the end of 2021. Therefore, the Central Bank expects all credit institutions under its direct supervision to comply with the general LCR minimum level of 100% as of 1 January 2022. This is in line with the ECB’s expectations of credit institutions as per the ECB announcement of 17 December 2021 and subsequent FAQs.

Relief measures regarding credit institutions' leverage ratio

The leverage ratio relief measures previously adopted by the Central Bank meant that banks could exclude certain central bank exposures from the leverage ratio. This decision by the Central Bank followed the Governing Council of the ECB's determination, as monetary authority of the euro area, that exceptional circumstances existed that permitted the temporary exclusion of certain exposures to central banks from the leverage ratio’s total exposure measure in view of the COVID-19 pandemic.

This relief measure expired on 31 March 2022; credit institutions which had previously made use of this measure must now ensure that such exposures are included in their leverage ratio.

Useful Links

FAQs on ECB supervisory measures in reaction to the coronavirus

EBA Response to COVID-19

COVID-19 Information Hub

The Central Bank will continue to review its approach to supervisory flexibility for credit institutions throughout the duration of the COVID-19 pandemic and may provide further updates as required.