2018年-EBA欧洲银行管理局_EBA_Report_on_Statutory_Prudential_Backstops_86页_1mb

EBA Report on Statutory Prudential Backstops Summary

Core Content

The EBA report provides an analysis of the European Commission's proposal for statutory prudential backstops, aimed at addressing insufficient provisioning for newly originated loans that turn non-performing. The report outlines the design and implications of different approaches to the backstop, including the deduction approach and the haircut approach, and evaluates their impact on banks' capital ratios and profitability.

Main Viewpoints

• Purpose of the Backstop: The statutory prudential backstop is intended to prevent underprovisioning of non-performing exposures (NPEs) and to avoid a systemic build-up of new NPEs. It aims to ensure that banks maintain sufficient provisions to support their solvency and stability.

• Design Options: The Commission proposed two main approaches:

  • Deduction Approach: This involves reducing regulatory capital by a certain percentage based on the provisioning levels for NPEs.
    • Option 1 (Baseline): Defaulted secured loans are fully deducted after 7 years.
    • Option 2a (Linear Path): A linear reduction path is used for the coverage of NPEs.
    • Option 2b (Progressive Path): A progressive reduction path is applied, which may lead to a more gradual impact.
  • Haircut Approach: This involves applying haircuts to the value of collateral for secured exposures to determine the required coverage.

• Level of Application: The backstop applies to newly originated loans that become non-performing. The timing of the full coverage (e.g., 6, 7, or 8 years) is a key factor in determining the impact on capital.

• Interactions with Regulatory and Accounting Frameworks: The report considers the interaction of the backstop with existing prudential and accounting frameworks, including the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD), and the IFRS 9 accounting standard. These interactions are crucial for understanding the full implications of the backstop on banks' capital and profitability.

• Impact on Profitability: The report evaluates how the prudential backstop affects bank profitability. It notes that the impact is generally lower when profitability is taken into account, as banks can use retained earnings to cover the additional provisions.

Key Information

Capital Impact

• The baseline deduction approach leads to a decrease in CET1 capital ratio of 205 basis points over a 20-year horizon.
• Over a 7-year horizon, the impact is around 56 basis points.
• When considering profitability, the impact is substantially lower, with the median bank able to cover the impact using 10% of retained earnings after dividends.

Variants of the Backstop

• Alternative Horizons: The impact varies depending on the time it takes for NPEs to be fully provisioned (6, 7, or 8 years).
• Alternative Specifications: Different deduction paths (linear and progressive) lead to slightly higher impacts than the baseline.
• Haircut Approach: This approach results in an impact that is 15–45 basis points higher than the deduction approach.

Methodology and Assumptions

• The analysis is based on a static balance sheet assumption, where no changes are assumed in the outstanding stock of exposures and other balance sheet items.
• The parameters used (e.g., default rate, cure rate, recovery rate) are fixed at their values from 2014–2017, the period when asset quality issues reached their peak.
• Outliers in the input parameters are replaced with values at the 10th or 90th percentile to ensure reliability.
• A scaling factor is applied to re-scale the projected defaulted exposure amounts to historically observed values.

Limitations and Interpretation

• The analysis is highly conservative, based on crisis data and no active mitigation by banks.
• The results should be considered as an upper bound of the potential impact, as they do not account for possible improvements in loan origination standards or provisioning policies.
• The report does not predict future impacts but rather estimates what the impact would have been if the backstop had been introduced in 2014 and banks had not taken any action.

Conclusion

The EBA report highlights that the statutory prudential backstop can incentivise banks to address NPEs proactively and prevent their accumulation. However, due to the conservative nature of the analysis, the actual impact may differ significantly. The report serves as a qualitative and quantitative assessment of the Commission's proposal, offering insights into the potential effects of the backstop on EU banks' capital and profitability.