Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic
Date: 2020-04-28
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: banking policy, credit institution, epidemic, financial legislation, financial risk, financial supervision, infectious disease, investment company, private-sector liquidity, trade information

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   EUROPEAN COMMISSION  Brussels, 28.4.2020  COM(2020) 310 final 2020/0066 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in response to the COVID-19 pandemic (Text with EEA relevance)  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

• 
Regulation  (EU)  No  575/20131  of  the  European  Parliament  and  of  the  Council  (the  Capital 
Requirements  Regulation  or  CRR)  establishes  together  with  Directive  2013/36/EU2  (the 
Capital  Requirements  Directive  or  CRD)  the  prudential  regulatory  framework  for  credit 
institutions operating in the Union. The CRR and CRD were adopted in the aftermath of the 
2008-2009  financial  crisis  to  enhance  the  resilience  of  institutions  operating  in  the  EU 
financial sector, largely based on global standards agreed with the EU’s international partners, 
in particular the Basel Committee on Banking Supervision (BCBS).  

The CRR has  been subsequently  amended to tackle remaining weaknesses in  the prudential 
regulatory  framework  and  to  implement  some  outstanding  elements  of  the  global  financial 
services  reform  that  are  essential  to  ensure  institutions'  resilience.  Amongst  various 
subsequent  changes,  Regulation  (EU)  2017/23953  has  inserted  in  the  CRR  transitional 
arrangements  for  mitigating  the  impact  on  own  funds  from  the  introduction  of  the  new 
accounting  standard,  the  International  Financial  Reporting  Standard  –  Financial  Instruments 
(IFRS) 9. Regulation (EU) 2019/6304 has introduced in the CRR a requirement for minimum 
loss coverage for non-performing exposures (the so-called prudential backstop). Furthermore, 
Regulation (EU) 2019/8765 (CRR II) has added to the CRR some of the final elements of the 
international reforms (the finalised Basel III framework), which entail amongst others, a new 
definition  of  the  leverage  ratio  and  a  leverage  ratio  buffer,  which  will  prevent  institutions 
from  excessively  increasing  leverage.  The  latter  Regulation  has  also  introduced  in  the  CRR 
more  favourable  prudential  treatments  of  certain  software  assets,  of  certain  pension-  and 
salary-backed loans,  as  well as of loans to small and medium sized  enterprises (SMEs)  and 
infrastructure projects. 

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Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential  requirements  for  credit  institutions  and  Directive  2013/36/EU  of  the  European  Parliament 
and  of  the  Council  of  26  June  2013  on  access  to  the  activity  of  credit  institutions  and  the  prudential 
supervision of credit institutions. 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and investment firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC  (OJ  L  176, 
27.6.2013, p. 338). 
Regulation  (EU)  2017/2395  of  the  European  Parliament  and  of  the  Council  of  12  December  2017 
amending Regulation (EU) No 575/2013 as regards transitional arrangements for mitigating the impact 
of  the  introduction  of  IFRS  9  on  own  funds  and  for  the  large  exposures  treatment  of  certain  public 
sector exposures denominated in the domestic currency of any Member State (OJ L 345, 27.12.2017, p. 
27). 
Regulation (EU) 2019/630 of the European Parliament and of the Council of 17 April 2019 amending 
Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures (OJ L 
111, 25.4.2019, p. 4). 
Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements 
for  own  funds  and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and 
disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1). 

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The  severe  economic  shock  caused  by  the  COVID-19  pandemic  and  the  exceptional 
containment  measures  are  having  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  fall  in  income.  Public  authorities  at  Union  and 
Member  State  levels  have  taken  decisive  actions  to  support  households  and  solvent 
undertakings  to  withstand this severe but  temporary slowdown in  economic activity and the 
liquidity  shortages  that  it  will  cause.  Due  to  the  reforms  undertaken  in  the  aftermath  of  the 
2008  financial  crisis,  credit  institutions  are  today  well  capitalised  and  much  more  resilient 
than they were in 2008. This enables them to play a key role in managing the economic shock 
that  stems  from  the  COVID-19  pandemic.  Nevertheless,  uncertainty  related  to  the  pace  of 
recovery of economic activity will inevitably have an impact on the banking sector.  

In reaction to the new circumstances, competent authorities across the Union have provided 
temporary capital and operational relief to ensure favourable conditions for credit institutions 
to continue lending amid COVID-19. It is therefore important that capital is deployed where it 
is  most  needed  and  that  the  prudential  framework  interacts  smoothly  with  the  various 
measures that address the COVID-19 pandemic. The CRR offers ample leeway for banks to 
support  public  and  private  initiatives  to  promote  continued  lending  in  the  context  of  the 
COVID-19  pandemic,  while  ensuring  a  prudent  approach.  The  flexibility  embedded  in  the 
CRR is described in the Commission Interpretative Communication of 28 April 20206 on the 
application  of  the  accounting  and  prudential  frameworks  to  facilitate  bank  lending  in  the 
Union amid COVID-19.  

Besides making full use of the flexibility allowed for in the existing framework, some limited 
changes  to  specific  aspects  of  the  CRR  are  necessary  in  order  to  maximise  the  capacity  of 
credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still 
ensuring their continued resilience. Moreover, at international level, the BCBS has agreed a 
one-year delay in the deadline for implementing the final elements of the Basel III framework, 
of  which  some  elements  had  been  already  incorporated  in  the  CRR7,  as  well  as  a  greater 
flexibility to  the phase-in of the impact  of the  IFRS 9 on capital. These changes  need to  be 
reflected in the existing rules. 

First,  it  is  necessary  to  adjust  the  transitional  arrangements  that  allow  credit  institutions  to 
alleviate the impact from expected credit-loss (ECL) provisioning under IFRS 9 on their own 
funds.  This  adjustment  would  allow  credit  institutions  to  better  mitigate  the  impact  of  any 
potential  increase  in  ECL  provisioning  caused  by  the  deterioration  in  the  credit  quality  of 
credit institutions’ exposures due to the economic consequences of the COVID-19 pandemic.  

Second, to account for the impact of COVID-19 related guarantees, the rules on the minimum 
loss coverage for non-performing exposures (NPEs) need to be adjusted to extend temporarily 
the  treatment  that  is  currently  applicable  to  NPEs  guaranteed  or  insured  by  export  credit 
agencies to NPEs that would arise as a consequence of the COVID-19 pandemic and that are 
covered  by  the  various  guarantee  schemes  that  were  put  in  place  by  Member  States.  This 
would  recognise  the  similar  characteristics  shared  by  export  credit  agencies  guarantees  and 
COVID-19 related guarantees. 

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Communication  from  the  Commission  to  the  European  Parliament  and  the  Council  -  Commission 
Interpretative  Communication  on  the  application  of  the  accounting  and  prudential  frameworks  to 
facilitate EU bank lending - Supporting businesses and households amid COVID-19, COM(2020)169 of 
28.04.2020. 
The  postponement  covers  both,  the  revised  rules  on  risk-based  capital  requirements  and  the  revised  rules  on  the 
leverage ratio. 

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Third, the offsetting mechanism associated with the competent authority discretion to  allow 
credit institutions to temporarily exclude exposures in the form of central bank reserves from 
the  calculation  of  the  leverage  ratio  needs  to  be  modified.  This  would  ensure  that  liquidity 
measures  provided  by  central  banks  in  a  crisis  context  would  be  effectively  channelled  by 
credit institutions to the economy. 

Fourth, it is necessary to defer, in line with the decision of the BCBS, the application date of 
the new leverage ratio buffer requirement. This would free up credit institutions’ operational 
capacity  and  allow  them  to  focus  on  the  more  immediate  challenges  associated  with  the 
COVID-19 pandemic.  

Fifth, the application dates of some of the capital benefits envisaged in the CRR but not yet 
applicable need to be anticipated, namely the provisions on the treatment of certain software 
assets, the provisions on certain loans backed by pensions or salaries, the revised supporting 
factor  for  small  and  medium-sized  enterprises  (SME)  and  the  new  supporting  factor  for 
infrastructure  finance.  Advancing  the  date  of  application  of  the  two  supporting  factors,  the 
preferential treatment of certain software assets, and the preferential treatment of certain loans 
backed  by  pensions  or  salaries  would  free  up  own  funds  of  institutions,  allowing  them  to 
boost much needed lending during the COVID-19 pandemic and its aftermath.  

These  proposed  changes  will  not  fundamentally  alter  the  prudential  regulatory  framework. 
They  form  part  of  the  response  of  the  Commission  to  address  the  emergency  situation 
triggered by the COVID-19 pandemic. These adjustments to the prudential framework would 
facilitate collective efforts aimed at mitigating the impact  of the pandemic and thus moving 
towards a fast recovery. 

• 

Consistency with existing policy provisions in the policy area 

including  with 

their  supervision, 

The  proposal  introduces  amendments  to  existing  legislation.  These  amendments  are  fully 
consistent  with  the  existing  policy  provisions  in  the  field  of  prudential  requirements  for 
institutions  and 
Interpretative 
Communication adopted at the same time as this proposal. They are also fully consistent with 
the Union’s  accounting rules, in  particular with  Commission Regulation  (EU) 2016/2067  of 
22 November 2016  amending Regulation  (EC)  No 1126/2008  adopting  certain  international 
accounting  standards  in  accordance  with  Regulation  (EC)  No  1606/2002  of  the  European 
Parliament and of the Council as regards IFRS 9. This proposal complements measures taken 
by  the  European  Central  Bank,  the  European  Banking  Authority  and  national  competent 
authorities in this area.  

the  Commission’s 

• 

Consistency with other Union policies 

This proposal is part of the broader response by the European Commission to the COVID-19 
pandemic. It is instrumental to ensuring the effectiveness of measures adopted by the Member 
States,  the  Commission  and  the  European  Central  Bank.  It  is  fully  consistent  with  the 
Commission Communication on the economic aspects of the coronavirus crisis issued on 13 
March 20208, as well as with ‘COVID 19 – Economic package – Using every available Euro’ 
launched on 2 April 20209. 

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Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the 
European Central Bank, the European Investment Bank and the Eurogroup on Coordinated economic response to 
the COVID-19 Outbreak, COM(2020) 112 final of 13.03.2020. 
Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the 
European Economic and Social Committee  and the Committee of the Regions on Coronavirus Response  - Using 
every available euro in every way possible to protect lives and livelihoods, COM(2020) 143 final of 02.04.2020. 

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2. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposal is based on Article 114 of the Treaty on the Functioning of the European Union 
(TFEU), the same legal basis as for the legislative acts that are being amended. 

• 

Subsidiarity (for non-exclusive competence)  

The  objectives  pursued  by  the  envisaged  amendments,  namely  to  maximise  the  capacity  of 
credit institutions to lend and to absorb losses related to the COVID-19 pandemic, while still 
ensuring  their  continued  resilience,  can  be  better  achieved  at  Union  level  rather  than  by 
different national initiatives as the amendments concern the application dates of Union rules 
or represent adjustments to existing Union rules in response to the COVID-19 pandemic. The 
problems and the underlying causes are the same across all Member States. In the absence of 
action by the Union the existing regulatory framework would be less effective in supporting 
the  various  measures  taken  by  public  authorities  at  both  Union  and  national  level  and  less 
reactive to exceptional market challenges.  

The  ability  of  Member  States  to  adopt  national  measures  is  limited,  given  that  the  CRR 
already regulates those matters, and changes at national level would conflict with Union law 
currently in force. If the Union were to cease regulating those aspects, the internal market for 
banking services would become subject to different sets of rules, leading to fragmentation and 
undermining the recently build single rulebook in this area.  

• 

Proportionality 

This  Union  action  is  necessary  to  achieve  the  objective  of  maximising  credit  institutions’ 
capacity to lend and to absorb losses amid the COVID-19 pandemic, whilst maintaining the 
consistency  of  the  prudential  framework.  The  proposed  amendments  do  not  go  beyond 
addressing selected provisions in the Union’s prudential framework for credit institutions that 
target  exclusively  measures  aimed  at  ensuring  recovery  from  the  current  COVID-19 
pandemic. Moreover, the proposed amendments  are limited to  those issues which cannot  be 
addressed within the existing margin of discretion the current rules provide for. 

3. 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

This proposal is not accompanied by a separate impact assessment, as this proposal does not 
alter  the  fundamental  aspects  of  the  CRR  and  does  not  impose  new  obligations  on  the 
concerned  parties.  Moreover,  the  impact  of  the  measures  which  are  being  amended  by  this 
proposal  have been subject  to  analysis in  the impact  assessments undertaken for Regulation 
(EU)  2017/2395,  Regulation  (EU)  2019/876  and  Regulation  (EU)  2019/630  amending  the 
CRR  in  relation  to  aspects  covered  by  this  proposal..  The  proposal  primarily  aims  at 
providing,  for  exceptional  reasons  in  the  context  of  the  current  COVID-19  pandemic, 
deferrals as regards the date of application of certain provisions of the CRR, or anticipating 
the  application  of  measures  that  would  relieve  banks  from  some  capital  requirements,  or 
specifying  the  prudential  treatment  of  certain  exposures  in  light  of  the  exceptional 
circumstances created by the COVID-19 pandemic. 

The  proposed  amendments  would  have  a  limited  impact  on  the  administrative  burden  for 
banks and the costs for them to adapt their internal operations, with costs expected to be offset 
by  benefits  derived  in  terms  of  capital  availability.  The  proposed  amendments  concern 

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provisions that enable banks to  use more favourable treatments,  but  do  not  impose on them 
such treatments.  

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Fundamental rights 

The Union is committed to high standards of protection of fundamental rights and is signatory 
to  a  broad  set  of  conventions  on  human  rights.  In  this  context,  the  proposal  is  not  likely  to 
have a direct impact on these rights, as listed in the main UN conventions on human rights, 
the Charter of Fundamental Rights of the European Union, which is an integral part of the EU 
Treaties and the European Convention on Human Rights (ECHR). 

4. 

BUDGETARY IMPLICATIONS 

The proposal does not have a budgetary impact for the Union institutions.  

5. 

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OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

Transitional  arrangements  for  mitigating  the  impact  of  IFRS  9  provisions  on 

regulatory capital  

Article 473a of the CRR contains transitional arrangements allowing institutions to add back 
to their Common Equity Tier 1 (CET1) capital a portion of any increase in provisions due to 
the  introduction  of  ECL  accounting  under  IFRS  9.  The  transitional  arrangements  consist  of 
two  components:  a  static  and  a  dynamic  component.  The  static  component  allows  credit 
institutions  to  partially  neutralise  the  “day-one  impact”  on  CET1  capital  of  the  increase  in 
accounting  provisions  due  to  the  introduction  of  IFRS  9.  The  dynamic  component  allows 
banks  to  partially  neutralise  the  impact  of  the  additional  (i.e.  post-day-one)  increase  in 
provisions  for  financial  assets  that  are  not  credit-impaired.  The  existing  transitional 
arrangements cover the period 2018-2022.  

The application of IFRS 9 during the economic downturn caused by the COVID-19 pandemic 
may lead to a sudden significant increase in ECL provisions, as for many exposures expected 
losses over their lifetime may  need to  be  calculated. To mitigate the potential  impact  that a 
sudden increase in ECL provision may have on institutions’ capacity to lend to clients at times 
when it is most needed, the transitional arrangements should be extended. This would bring 
additional  relief  to  the  impact  of  the  COVID-19  pandemic  on  institutions’  possible  rise  in 
provisioning  needs  under  IFRS  9,  while  maintaining  the  transitional  arrangements  for  the 
ECL  amounts  established  before  the  COVID-19  pandemic.  Therefore,  these  amendments 
would allow resetting the 5-year transition period which started in 2018. The new transition 
period will thus  allow  financial institutions to  adjust the calibration of the arrangements  for 
adding back provisions to CET1 capital during the period 2020-2024. 

In the context of the COVID-19 pandemic the transitional arrangements are extended only for 
the  dynamic  component  in  accordance  with  the  targeted  revisions10  of  the  internationally 
agreed  prudential  standards  (Article  1  point  (2)  of  the  proposal)  to  address  the  potential 
increase in ECL provisions following the COVID-19 pandemic. To ensure that the additional 
relief  is  targeted  at  ECL  arising  from  the  exceptional  circumstances  of  the  COVID-19 
pandemic  without  introducing  undue  complexity,  the  reference  date  for  any  increase  in 

10 

See press release “Basel Committee sets out additional measures to alleviate the impact of Covid-19”, 3 April 2020, 
available at: https://www.bis.org/press/p200403.htm. 

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provisions that would be  subject  to  the extended transitional arrangements is  moved from  1 
January 2018 to 1 January 2020, as from this date on additional losses incurred by institutions 
would likely be related to the COVID-19 pandemic. 

Article 473a(1) of the CRR contains a revised formula for the calculation of the ECL amounts 
that can be included in (i.e. “added back to”) CET1 capital, which applies different factors to 
the  static  and  the  dynamic  component,  respectively.  While  the  calculation  of  the  static 
component  remains  unchanged  following  this  proposal,  the  dynamic  component  will  be 
subject to an extended transitional period and to a revised transitional adjustment factor. 

The  reference  dates  in  paragraphs  (3)  and  (5)  of  Article  473a  of  the  CRR  for  computing  a 
possible  increase  in  ECL  provisions  for  non-credit-impaired  assets  at  the  reporting  date, 
which  may  be  added  back  to  CET1  capital  are  amended  in  consideration  of  the  revised 
formula in paragraph 1 and the new cut-off date.  

The  transition  period  for  the  static  component  in  Article  473a(6)  of  the  CRR  is  adapted  in 
light of the new formula in paragraph 1 of that Article. 

A new paragraph 6a extends the transition for the dynamic component, allowing institutions 
to fully add-back to their CET1 capital any increase in new provisions recognised in 2020 and 
2021 for their financial  assets that are not  credit-impaired. The amount that  could  be added 
back from 2022 to 2024 would decrease in a linear manner. 

Changes  to  Article  473a(7)  of  the  CRR  simplify  the  recalculation  of  capital  requirements. 
They  replace  the  rescaling  of  all  exposure  values  that  are  reduced  by  provisions  with  a 
standard risk weight of 100% to be assigned to the amounts added back to CET1 capital. 

Changes to Article 473a(9) of the CRR allow institutions that opted previously not to use the 
transitional  arrangements  to  reverse  that  decision  anytime  during  the  transitional  period 
subject to prior approval from their competent authority. Furthermore, Article 473a(9) of the 
CRR provides institutions with the option to apply only the dynamic component. Finally, to 
monitor  the  number  of  institutions  across  the  EU  using  the  transitional  arrangements, 
competent  authorities  are  required  to  periodically  submit  information  on  the  number  of 
institutions they supervise that use those arrangements to the EBA. 

Treatment of publicly guaranteed loans under the NPL prudential backstop  

Official export credit agencies typically issue guarantees on behalf of national governments to 
provide  credit  protection  for  loans  that  are  extended  for  export  financing  purposes.  Non-
performing  loans  guaranteed  by  such  agencies  receive  a  preferential  treatment  regarding 
provisioning  requirements  under  Article  47c  of  the  CRR.  The  proposed  derogation  from 
Article  47c(3)  extends  this  preferential  treatment  to  exposures  guaranteed  or  counter-
guaranteed by the public sector in the context of measures aimed at mitigating the economic 
impact of the COVID-19 pandemic, subject to Union State aid rules, where applicable. This 
would take account of the similar risk profile of these guaranteed exposures (Article 1 point 
(3) of the proposal).   

Date of application of the leverage ratio buffer 

The  CRR  II  introduced  in  the  CRR  a  new  Article  92(1a)  imposing  a  leverage  ratio  buffer 
requirement  on  global  systemically  important  institutions.  The  date  of  application  of  the 
buffer was originally set to 1 January 2022. In the context of the COVID-19 pandemic and in 
line with the revised implementation timeline agreed by the BCBS, the date of application set 

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in Article 3(5) of the CRR II is deferred by one year, to 1 January 2023 (Article 2 point (2) of 
the proposal). 

Offsetting  the  impact  of  excluding  certain  exposures  from  the  calculation  of  the 

leverage ratio 

The CRR II has modified the calculation of the leverage ratio on the basis of the revised Basel 
standard.  The  changes  included  the  implementation  of  a  discretion  to  temporarily  exclude 
certain  central  bank  exposures  from  an  institutions’  total  exposure  measure  in  exceptional 
circumstances (Article 429a(1)(n) and (5) to (7) of the CRR). The exemption may be granted 
for  a  limited  period  of  time  not  exceeding  one  year,  where  the  institution's  competent 
authority has determined, after consulting the relevant central bank, and has declared publicly 
that  such  exceptional  circumstances  exist.  Any  impact  of  the  exclusion  is  fully  offset  via  a 
mechanism  set  out  in  Article  429a(7)  of  the  CRR  that  increases  a  credit  institutions’ 
individual leverage ratio requirement in a strictly proportionate manner.  

The  discretion,  which  is  intended  to  facilitate  the  effective  transmission  of  monetary  policy 
measures,  will  become  applicable  together  with  the  leverage  ratio  requirement  on  28  June 
2021. However, the current COVID-19 crisis has shown that the offsetting mechanism, when 
applicable,  would  be  too  restrictive  and  that  its  application  would  actually  not  facilitate  an 
effective  transmission  of  monetary  policy.  Indeed,  because  of  the  current  offsetting 
mechanism, credit institutions may be constrained with regard to the level of the increase of 
their  central  bank  reserves.  The  current  offsetting  mechanism  might  therefore  discourage 
credit institutions  from  drawing on central  bank liquidity facilities in  a situation of stress  to 
the extent that is needed or wished. This would result in hampering the effective transmission 
of  monetary  policy  measures  and,  ultimately,  forcing  an  institution  to  deleverage  by  selling 
assets or reducing the level of lending to the real economy, or both, given its limited leeway to 
control the extent of these reserves during a crisis. 

On  the  basis  of  these  findings,  and  in  light  of  the  Commission’s  mandate  set  out  in  Article 
511  of  the  CRR  to  review,  amongst  others,  the  treatment  of  central  bank  reserves,  the 
Commission considers it is appropriate to modify the offsetting mechanism before it becomes 
applicable  (Article  1  point  (1)(b)  of  the  proposal).  This  will  enhance  the  flexibility  to  act 
appropriately  and  purposefully  during  possible  future  shocks  and  crises  and  enhance  the 
effectiveness of the measure. In particular, a credit institution that exercises the discretion will 
be  required  to  calculate  the  adjusted  leverage  ratio  only  once,  namely  at  the  moment  it 
exercises  the  discretion,  and  based  on  the  value  of  the  institution’s  eligible  central  bank 
reserves  and  total  exposure  measure  on  the  day  when  the  institution’s  competent  authority 
declares that exceptional circumstances that warrant the exercise of the discretion exist. The 
adjusted  leverage  ratio  will  apply  throughout  the  full  period  during  which  the  discretion  is 
exercised and will not change like under the current offsetting mechanism. The modifications 
to the offsetting mechanism require also changes to Article 429a(1)(n) to allow the exclusion 
of all eligible central bank reserves rather than just those entered into after the exemption took 
effect (Article 1 point (1)(a) of the proposal). 

Date  of  application  of  the  exemption  of  certain  software  assets  from  capital 

deductions 

The  CRR  II  introduced  provisions  to  change  the  regulatory  treatment  of  "prudently  valued 
software  assets",  which  are  not  materially  affected  in  a  gone  concern  situation  (i.e.  the 

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resolution,  insolvency  or  liquidation  of  an  institution).  Institutions  will  not  be  required 
anymore to deduct these particular software assets from their Common Equity Tier 1 capital 
(point (b) of Article 36(1) of the CRR). The EBA was mandated to develop a draft Regulatory 
Technical Standard (RTS) to specify how this exemption from deductions is to be applied, by 
defining  the  scope  of  software  assets  to  be  exempted  and  how  they  will  be  risk-weighted 
(Article 36(4) of the CRR). The application date of the revised treatment of software assets 
has been set to 12 months after the entry into force of this RTS (Article 3(7) of the CRR II).  

In  the  context  of  the  accelerated  up-take  of  digital  services  as  a  consequences  of  public 
measures adopted to address the COVID-19 pandemic, the date of application is amended in 
order to permit the exemption to apply earlier, namely as of the date of entry into force of the 
RTS (Article 2 point (3) of the proposal). 

Date  of  application  of  the  specific  treatment  envisaged  for  certain  loans  backed  by 

pensions or salaries 

The  CRR  II  introduced  in  Article  123  of  the  CRR  a  more  favourable  treatment  of  certain 
loans  granted  by  credit  institutions  to  pensioners  or  employees  with  a  permanent  contract. 
This  favourable  treatment  was  introduced  because  of  the  additional  guarantees  attached  to 
such  loans  stemming  from  the  unconditional  transfer  of  part  of  the  borrower’s  pension  or 
salary to that credit institution. The application of this treatment in the context of the COVID-
19 pandemic would incentivise institutions to increase lending to employees and pensioners. 
To  allow  institutions  to  benefit  from  the  more  favourable  treatment  already  during  the 
COVID-19 pandemic, the date of application of that provision is advanced (Article 2 point (1) 
of the proposal). 

Date  of  application  of  the  revised  SME  supporting  factor  and  the  infrastructure 

supporting factor 

The  CRR  II  made  changes  to  Article  501  of  Regulation  (EU)  No  575/2013  concerning  the 
adjustment of own funds requirements for non-defaulted SME exposures (the SME supporting 
factor), and introduced in Article 501a of Regulation (EU) No 575/2013 a new adjustment to 
own funds requirements 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). These supporting factors allow a more favourable treatment 
of  certain  exposures  to  SMEs  and  infrastructure  with  a  view  to  incentivise  institutions  to 
prudently  increase  lending  to  those  entities.  In  the  context  of  the  COVID-19  pandemic  it  is 
essential  that  banks  continue  lending  to  SMEs  and  supporting  infrastructure  investments. 
Therefore, the date of application of the two supporting factors as set out in Article 3 of CRR 
II is advanced (Article 2 point (1) of the proposal). 

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2020/0066 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards adjustments in 
response to the COVID-19 pandemic 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 

Having regard to the opinion of the European Central Bank, 

Having regard to the opinion of the European Economic and Social Committee, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

11 

12 

13 

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council11 
establishes,  together  with  Directive  of  the  European  Parliament  and  of  the  Council 
2013/36/EU12,  the  prudential  regulatory  framework  for  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 
framework has contributed to enhancing the resilience of institutions operating in the 
Union  and  to  making  them  better  prepared  to  face  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  ensure  the  resilience  of  institutions.  Among  the  subsequent  changes, 
Regulation  (EU)  2017/2395  of  the  European  Parliament  and  of  the  Council13  has 

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 
648/2012 (OJ L 176, 27.6.2013, p. 1). 
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 
activity of credit institutions and the prudential supervision of credit institutions and  investment firms, 
amending  Directive  2002/87/EC  and  repealing  Directives  2006/48/EC  and  2006/49/EC  (OJ  L  176, 
27.6.2013, p. 338). 
Regulation  (EU)  2017/2395  of  the  European  Parliament  and  of  the  Council  of  12  December  2017 
amending Regulation (EU) No 575/2013 as regards transitional arrangements for mitigating the impact 
of  the  introduction  of  IFRS  9  on  own  funds  and  for  the  large  exposures  treatment  of  certain  public 

EN 

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introduced  in  Regulation  (EU)  No  575/2013  transitional  arrangements  for  mitigating 
the impact on own funds from the introduction of the International Financial Reporting 
Standard - Financial Instruments (IFRS 9). Regulation (EU) 2019/630 of the European 
Parliament  and  of  the  Council14  has  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 Council15 has introduced to Regulation (EU) No 575/2013 some 
of  the  final  elements  of  the  finalised  Basel  III  framework,    among  others,  a  new 
definition of the leverage ratio and a leverage ratio buffer, which  prevent institutions 
from  excessively  increasing  leverage,  as  well  as  a  more  favourable  prudential 
treatment  of  certain  software  assets,  a  more  favourable  treatment  of  certain  loans 
backed  by  pensions  or  salaries,  a  revised  supporting  factor  for  loans  to  small  and 
medium-sized enterprises (SMEs), and a supporting factor for infrastructure projects. 

The  severe  economic  shock  caused  by  the  COVID-19  pandemic  and  the  exceptional 
containment  measures  have  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 fall in income. Public authorities 
at  Union  and  Member  State  level  have  taken  decisive  actions  to  support  households 
and  solvent  undertakings  to  withstand  this  severe  but  temporary  slowdown  in 
economic activity and the liquidity shortages it causes.  

Institutions will have a key role in contributing to the recovery. At the same time they 
are  likely  to  be  impacted  by  the  deteriorating  economic  situation.  Competent 
authorities  have  provided  temporary  capital,  liquidity  and  operational  relief  to  
institutions  to  ensure  that  they  can  continue  to  fulfil  their  role  in  funding  the  real 
economy in a more challenging environment. The Commission, the European Central 
Bank and the European Banking Authority have provided clarity on the application of 
the  flexibility  already  embedded  in  Regulation  (EU)  No  575/2013  by  issuing 
interpretations  and  guidance  on  the  application  of  the  prudential  framework  in  the 
context  of  COVID-1916.  In  reaction  to  the  COVID-19  pandemic,  BCBS  has  also 
provided some flexibility in the application of international standards17.  

sector exposures denominated in the domestic currency of any Member State (OJ L 345, 27.12.2017, p. 
27). 
Regulation (EU) 2019/630 of the European Parliament and of the Council of 17 April 2019 amending 
Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures (OJ L 
111, 25.4.2019, p. 4). 
Regulation (EU) 2019/876 of the European Parliament and of the  Council of 20 May 2019 amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements 
for  own  funds  and  eligible  liabilities,  counterparty  credit  risk,  market  risk,  exposures  to  central 
counterparties,  exposures  to  collective  investment  undertakings,  large  exposures,  reporting  and 
disclosure requirements, and Regulation (EU) No 648/2012 (OJ L 150, 7.6.2019, p. 1). 
This includes the Communication from the Commission to the European Parliament and the Council - 
Commission  Interpretative  Communication  on  the  application  of  the  accounting  and  prudential 
frameworks  to  facilitate  EU  bank  lending  -  Supporting  businesses  and  households  amid  COVID-19, 
COM(2020)169 of 28.04.2020; the Press release “ECB Banking Supervision provides further flexibility 
accompanying  FAQs,  20  March  2020, 
and 
to  banks 
https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200320~4cdbbcf466.en.html; 
EBA Statement on the application of the prudential framework regarding Default, Forbearance and IFRS9 in light 
of COVID-19 measures, 25 March 2020, available at: https://eba.europa.eu/eba-provides-clarity-banks-consumers-
application-prudential-framework-light-covid-19-measures. 
See press release “Basel Committee sets out additional measures to alleviate the impact of Covid-19”, 3 
April 2020, https://www.bis.org/press/p200403.htm 

coronavirus” 

reaction 

to 

in 

(3) 

(4) 

14 

15 

16 

17 

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(5) 

(6) 

(7) 

(8) 

(9) 

18 

It  is  important  that  institutions  employ  their  capital  where  it  is  most  needed  and  the 
Union  regulatory  framework  facilitates  this,  whilst  ensuring  that  institutions  act 
prudently. Further to the flexibility provided in the existing rules, targeted changes to 
Regulation  (EU)  No 575/2013  would ensure that that  prudential  framework interacts 
smoothly with the various measures that address the COVID-19 emergency. 

The  extraordinary  circumstances  of  the  COVID-19  pandemic  and  the  unprecedented 
magnitude of challenges triggered call for immediate action to ensure that institutions 
have the conditions to effectively channel funds to businesses and households and to 
absorb the economic shock caused by the COVID-19 pandemic.  

Guarantees  provided  in  the  context  of  the  COVID-19  pandemic  by  national 
governments or other public entities, which are eligible as credit protection providers 
under  the  credit  risk  mitigation  rules  set  out  in  Chapter  Four  of  Part  Three  of 
Regulation (EU) No 575/2013 are comparable regarding their risk mitigating effects to 
guarantees provided by official export credit agencies as referred to in Article 47c of 
Regulation (EU) No 575/2013. It is therefore justified to align the minimum coverage 
requirements  for  non-performing  exposures  benefiting  from  guarantees  granted  by 
national  governments  or  other  public  entities  to  those  benefiting  from  guarantees 
granted  by  official  export  credit  agencies.  Therefore,  guarantees  and  counter-
guarantees that are extended in the context of the COVID-19 pandemic in accordance 
with  State  aid  rules  should  be  treated  in  the  same  way  as  guarantees  provided  by 
official export credit agencies. 

Evidence emerged in the context of the COVID-19 pandemic has made apparent that 
the  possibility  to  temporarily  exclude  certain  central  bank  exposures  from  the 
calculation of an institution’s total exposure measure, as laid down in Article 429a of 
Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876, could prove 
essential during a crisis situation. However, the effectiveness of this measure appears 
to  be  hampered  by  the  reduced  flexibility  stemming  from  the  offsetting  mechanism 
attached to such temporary exclusions that would constrain the ability of institutions to 
increase  central  bank  exposures  in  a  crisis  situation.  This  could  ultimately  result  in 
forcing the institution to reduce the level of lending to households and businesses. In 
order to avoid any undesired consequences related to the offsetting mechanism and to 
ensure  the  effectiveness  of  that  exclusion  in  the  face  of  possible  future  shocks  and 
crises,  the  offsetting  mechanism  should  be  modified  before  the  leverage  ratio 
requirement  set  out  in  point  (d)  of  Article  92(1)  of  Regulation  (EU)  No  575/2013 
becomes  applicable  in  accordance  with  Union  law  on  28  June  2021.  Pending  the 
application  of  the  amended  provisions  on  the  calculation  of  the  leverage  ratio  as 
introduced  by  Regulation  (EU)  2019/876,  Article  429a  should  continue  to  apply  as 
introduced by the Commission Delegated Regulation (EU) 2015/6218. 

A large part of the institutions operating in the Union have been subject to IFRS 9 as 
of  1  January  2018.  In  line  with  international  standards  adopted  by  the  BCBS, 
Regulation  (EU)  2017/2395  introduced  in  Regulation  (EU)  No  575/2013  transitional 
arrangements  to  mitigate  the  potentially  significant  negative  impact  on  institutions’ 
Common  Equity  Tier  1  capital  arising  from  expected  credit  loss  accounting  under 
IFRS 9. 

Commission  Delegated  Regulation  (EU)  2015/62  of  10  October  2014  amending  Regulation  (EU)  No 
575/2013  of  the  European  Parliament  and  of  the  Council  with  regard  to  the  leverage  ratio,  OJ  L  11, 
17.1.2015, p.37-43 

EN 

11 

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(10)  The  application  of  IFRS  9  during  the  economic  downturn  caused  by  the  COVID-19 
pandemic may lead to a sudden significant increase in expected credit loss provisions, 
as for many exposures expected losses over their lifetime may need to be calculated. 
The BCBS agreed on 3 April 2020 to allow more flexibility in the implementation of 
the transitional arrangements that phase in the impact of IFRS 9. In order to limit the 
possible volatility of regulatory capital that may occur if the COVID-19 crisis results 
in a significant increase in expected credit loss provisions, it is necessary to extend the 
transitional arrangements also in Union law. 

(11)  To  mitigate  the  potential  impact  that  a  sudden  increase  in  expected  credit  loss 
provisions may have on institutions’ capacity to lend to clients at times when it is most 
needed, the transitional arrangements should be extended by two years and institutions 
should  be  allowed  to  fully  add-back  to  their  Common  Equity  Tier  1  capital  any 
increase in new expected credit loss provisions that they recognise in 2020 and 2021 
for  their  financial  assets,  which  are  not  credit-impaired.  This  would  bring  additional 
relief  to  the  impact  of  the  COVID-19  crisis  on  institutions’  possible  rise  in 
provisioning needs under IFRS 9 while maintaining the transitional arrangements for 
the expected credit loss amounts established before the pandemic of COVID-19. 

(12) 

(13) 

Institutions  that  opted not  to  use the transitional arrangements previously  are able to 
reverse  that  decision  anytime  during  the  transitional  period  subject  to  prior  approval 
from  their  competent  authority.  Subsequently  and  subject  to  supervisory  approval, 
institutions have a possibility to opt out from using the transitional arrangements. 

In  March  2020,  the  Group  of  Central  Bank  Governors  and  Heads  of  Supervision 
(GHOS)  has  revised  the  implementation  timeline  of  the  final  elements  of  the  Basel 
framework. Whilst  most of the final  elements  still need to  be implemented in  Union 
law,  the  leverage  ratio  buffer  requirement  for  global  systemically  important 
institutions  has  already  been  implemented  through  the  amendments  brought  by 
Regulation  (EU)  2019/876.  Therefore,  the  date  of  application  for  the  leverage  ratio 
buffer  requirement  should  be  deferred  by  one  year  to  1 January  2023,  as  agreed 
internationally.  The  date  of  application  set  in  Regulation  (EU)  2019/876  should  be 
revised  accordingly  in  order  to  ensure  a  level  playing  field  internationally  for 
institutions  established  in  the  Union  and  operating  outside  the  Union.  With  the 
application  of 
the 
postponement  period  there  would  be  no  consequences  for  the  failure  to  meet  that 
requirement  as  set  out  in  Article  141c  of  Directive  2013/36/EU  and  no  related 
restriction on distributions set out in Article 141b of that Directive. 

leverage  ratio  buffer  requirement  postponed,  during 

the 

(14)  Given  the  specific  guarantees  attached  to  loans  granted  by  credit  institutions  to 
pensioners or employees with a permanent contract against the unconditional transfer 
of  part  of  the  borrower’s  pension  or  salary  to  that  credit  institution,  Article  123  of 
Regulation  (EU)  No  575/2013  was  amended  by  Regulation  (EU)  2019/876  to  allow 
for a more favourable treatment of such loans. The application of this treatment in the 
context of the COVID-19 pandemic would incentivise institutions to increase lending 
to  employees  and  pensioners.  It  is  therefore  necessary  to  advance  the  date  of 
application of that provision so that it  can be used by institutions already  during the 
COVID-19 pandemic. 

(15)  The provisions on the adjustment of risk-weighted non-defaulted SME exposures  set 
out in Article 501 of Regulation (EU) No 575/2013 (the SME supporting factor) have 
been  amended  by  Regulation  (EU)  2019/876.  That  Regulation  also  introduced  in 
Article  501a  of  Regulation  (EU)  No  575/2013  a  new  adjustment  to  own  funds 

EN 

12 

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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  factors).  As  those  supporting  factors  allow  a 
more  favourable  treatment  of  certain  exposures  to  SMEs  and  infrastructure,  their 
application in the context of the COVID-19 pandemic would incentivise institutions to 
increase much needed lending to those entities. It is therefore necessary to advance the 
date  of  application  of  the  two  supporting  factors  so  that  they  can  be  used  by 
institutions already during the COVID-19 pandemic. 

(16)  The  prudential  treatment  of  certain  software  assets  has  been  amended  by  Regulation 
(EU)  2019/876  in  order  to  further  support  the  transition  towards  a  more  digitalised 
banking  sector.  In  the  context  of  the  accelerated  up-take  of  digital  services  as  a 
consequences  of  public  measures  adopted  to  address  the  COVID-19  pandemic,  the 
application of these changes should be anticipated. 

(17)  Since  the  objectives  of  this  Regulation,  namely  to  maximise  the  capacity  of  credit 
institutions to lend and to absorb losses related to the COVID-19 pandemic, while still 
ensuring  their  continued  resilience,  cannot  be  sufficiently  achieved  by  the  Member 
States but can rather, by reason of their scale and effects, be better achieved at Union 
level, the Union may adopt measures, in accordance with the principle of subsidiarity 
as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In  accordance  with  the 
principle  of  proportionality,  as  set  out  in  that  Article,  this  Regulation  does  not  go 
beyond what is necessary in order to achieve those objectives. 

(18)  For the extraordinary support measures adopted to alleviate the impact of the COVID-
19  pandemic  to  be  fully  effective  with  regard  to  keeping  the  banking  sector  more 
resilient  and  providing  an  incentive  to  the  institutions  to  continue  lending,  it  is 
necessary  for  the  alleviating  effect  of  those  measures  to  be  immediately  reflected  in 
the way in which regulatory capital requirements are determined. Having regard to the 
urgency  of  those  adjustments  to  the  prudential  framework,  this  Regulation  should 
enter into force on the day following that of its publication in the Official Journal of 
the European Union.  

(19)  Given  that  urgency,  it  is  considered  necessary  to  use  the  exception  from  the  eight-
week  period  referred  to  in  Article  4  of  Protocol  No  1  on  the  role  of  National 
Parliaments in the European Union, annexed to the Treaty on European Union, to the 
Treaty  on  the  Functioning  of  the  European  Union  and  to  the  Treaty  establishing  the 
European Atomic Energy Community. 

(20)  Regulations  (EU)  No  575/2013  and  (EU)  2019/876  should  therefore  be  amended 

accordingly, 

HAVE ADOPTED THIS REGULATION: 

Article 1 
Amendments to Regulation (EU) No 575/2013 

Regulation (EU) No 575/2013 is amended as follows:   

(1) 

Article 429a, as amended by Regulation (EU) 2019/876, is amended as follows: 

(a) 

in  paragraph  1,  the  introductory  phrase  of  point  (n)  is  replaced  by  the 
following: 

“(n)  the  following  exposures  to  the  institution's  central  bank,  subject  to  the 
conditions set out in paragraphs 5 and 6:”; 

EN 

13 

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(b) 

in  paragraph  7,  the  definitions  of  ‘EMLR’  and  ‘CB’  are  replaced  by  the 
following: 

“EMLR = the institution's total exposure measure as defined in Article 429(4), 
including the exposures excluded in accordance with point (n) of paragraph 1 
of this Article, on the day  of the public declaration referred to  in  point (a) of 
paragraph 5 of this Article; and 

CB = the total  value of  the institution’s exposures  to  its central  bank that  are 
eligible to be excluded in accordance with point (n) of paragraph 1, on the day 
of the public declaration referred to in point (a) of paragraph 5.”; 

(2) 

Article 473a is amended as follows: 

(a) 

paragraph 1 is amended as follows:  

(i)  in  the  first  subparagraph;  the  introductory  phrase  is  replaced  by  the 
following: 

“By  way  of  derogation  from  Article  50  and  until  the  end  of  the  transitional 
periods  set  out  in  paragraphs  6  and  6a  of  this  Article,  the  following  may 
include  in  their  Common  Equity  Tier  1  capital  the  amount  calculated  in 
accordance with this paragraph:”; 

(ii) the second subparagraph is replaced by the following: 

“The amount referred to in the first subparagraph shall be calculated as the sum 
of the following: 

(a) 

for  exposures  which  are  subject  to  risk  weighting  in  accordance  with 
Chapter  2  of  Title  II  of  Part  Three,  the  amount  (ABSA)  calculated  in 
accordance with the following formula: 

ABSA = (A2,SA – t1) x f1 + (A4,SA – t2) x f2 

where: 

A2,SA = the amount calculated in accordance with paragraph 2; 

A4,SA =  the  amount  calculated  in  accordance  with  paragraph  4  based  on 
the amounts calculated in accordance with paragraph 3; 

f1 = the applicable factor laid down in paragraph 6; 

f2 = the applicable factor laid down in paragraph 6a; 

t1  =  the  increase  of  Common  Equity  Tier  1  capital  that  is  due  to  tax 
deductibility of the amount A2,SA; 

t2  =  the  increase  of  Common  Equity  Tier  1  capital  that  is  due  to  tax 
deductibility of the amount A4,SA; 

(b) 

for  exposures  which  are  subject  to  risk  weighting  in  accordance  with 
Chapter  3  of  Title  II  of  Part  Three,  the  amount  (ABIRB)  calculated  in 
accordance with the following formula: 

ABIRB = (A2,IRB – t1) x f1 + (A4,IRB – t2) x f2 

where: 

A2,IRB = the amount calculated in accordance with paragraph 2 adjusted in 
accordance with point (a) of paragraph 5; 

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A4,IRB  =  the  amount  calculated  in  accordance  with  paragraph  4  based  on 
the  amounts  calculated  in  accordance  with  paragraph  3  which  are 
adjusted in accordance with points (b) and (c) of paragraph 5; 

f1 = the applicable factor laid down in paragraph 6; 

f2 = the applicable factor laid down in paragraph 6a; 

t1  =  the  increase  of  Common  Equity  Tier  1  capital  that  is  due  to  tax 
deductibility of the amount A2,IRB; 

t2  =  the  increase  of  Common  Equity  Tier  1  capital  that  is  due  to  tax 
deductibility of the amount A4,IRB"”; 

(b) 

in paragraph 3, point (b) is replaced by the following: 

“(b) the sum of the 12-month expected credit losses determined in accordance 
with  paragraph  5.5.5  of  the  Annex  relating  to  IFRS  9  and  the  amount  of  the 
loss  allowance  for  lifetime  expected  credit  losses  determined  in  accordance 
with  paragraph  5.5.3  of  the  Annex  relating  to  IFRS  9  excluding  the  loss 
allowance for lifetime expected credit losses for financial assets that are credit-
impaired  as  defined  in  Appendix  A  to  the  Annex  relating  to  IFRS  9  as  of  1 
January  2020  or  on  the  date  of  initial  application  of  IFRS  9,  whichever  is 
later.”; 

(c) 

in paragraph 5, point (c) is replaced by the following: 

“(c)  institutions  shall  replace  the  amount  calculated  in  accordance  with  point 
(b) of paragraph 3 of this Article by the sum of the 12-month expected credit 
losses determined in accordance with paragraph 5.5.5 of the Annex relating to 
IFRS 9 and the amount of the loss allowance for lifetime expected credit losses 
determined in accordance with paragraph 5.5.3 of the Annex relating to IFRS 9 
excluding  the  loss  allowance  for  lifetime  expected  credit  losses  for  financial 
assets that are credit-impaired, as defined in Appendix A to the Annex relating 
to IFRS 9, as of 1 January 2020 or on the date of initial application of IFRS 9, 
whichever is later, reduced by the sum of related expected loss amounts for the 
same  exposures  calculated  in  accordance  with  Article  158(5),  (6)  and  (10). 
Where the calculation results in a negative number, the institution shall set the 
value  of  the  amount  referred  to  in  point  (b)  of  paragraph  3  of  this  Article  as 
equal to zero.”; 

(d)  paragraph 6 is replaced by the following: 

“6.  Institutions  shall  apply  the  following  factors  f1  to  calculate  the  amounts 
ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of 
paragraph 1 respectively: 

(a) 

0,7 during the period from 1 January 2020 to 31 December 2020; 

(b)  0,5 during the period from 1 January 2021 to 31 December 2021; 

(c) 

0,25 during the period from 1 January 2022 to 31 December 2022; 

(d)  0 during the period from 1 January 2023 to 31 December 2024. 

Institutions whose financial year commences after 1 January 2020 but before 1 
January 2021 shall adjust the dates in points (a) to (d) of the first subparagraph 
so that they correspond to their financial year, shall report the adjusted dates to 
their competent authority and shall publicly disclose them. 

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Institutions  which  start  to  apply  accounting  standards  as  referred  to  in 
paragraph  1  on  or  after  1  January  2021  shall  apply  the  relevant  factors  in 
accordance  with  points  (b)  to  (d)  of  the  first  subparagraph  starting  with  the 
factor  corresponding  to  the  year  of  the  first  application  of  those  accounting 
standards.”; 

(e) 

the following paragraph 6a is inserted: 

“6a.  Institutions  shall  apply  the  following  factors  f2  to  calculate  the  amounts 
ABSA and ABIRB referred to in points (a) and (b) of the second subparagraph of 
paragraph 1 respectively: 

(a) 

1 during the period from 1 January 2020 to 31 December 2020; 

(b)  1 during the period from 1 January 2021 to 31 December 2021; 

(c) 

0,75 during the period from 1 January 2022 to 31 December 2022; 

(d)  0,5 during the period from 1 January 2023 to 31 December 2023; 

(e) 

0,25 during the period from 1 January 2024 to 31 December 2024. 

Institutions whose financial year commences after 1 January 2020 but before 1 
January 2021 shall adjust the dates in points (a) to (e) of the first subparagraph 
so that they correspond to their financial year, shall report the adjusted dates to 
their competent authority and shall publicly disclose them. 

Institutions  which  start  to  apply  accounting  standards  as  referred  to  in 
paragraph  1  on  or  after  1  January  2021  shall  apply  the  relevant  factors  in 
accordance  with  points  (b)  to  (e)  of  the  first  subparagraph  starting  with  the 
factor  corresponding  to  the  year  of  the  first  application  of  those  accounting 
standards.”; 

(f) 

paragraph 7 is amended as follows: 

(i) point (b) is deleted; 

(ii) the following subparagraph is inserted: 

“When recalculating the requirements laid down in this Regulation and in 
Directive  2013/36/EU  for  the  purpose  of  the  first  subparagraph,  the 
amount  ABSA  referred  to  in  point  (a)  of  the  second  subparagraph  of 
paragraph 1 shall be assigned a risk weight of 100 %.”; 

(g)  paragraph 8 is replaced by the following: 

“8. During the periods set out in paragraphs 6 and 6a of this Article, in addition 
to  disclosing  the  information  required  in  Part  Eight,  institutions  that  have 
decided  to  apply  the  transitional  arrangements  set  out  in  this  Article  shall 
disclose the amounts of own funds, Common Equity Tier 1 capital and Tier 1 
capital,  the  Common  Equity  Tier  1  capital  ratio,  the  Tier  1  capital  ratio,  the 
total capital ratio and the leverage ratio they would have in case they were not 
to apply this Article.”; 

(h)  paragraph (9) is amended as follows: 

(i) in the first subparagraph, the second sentence is replaced by the following: 

“Where  an  institution  has  received  the  prior  permission  of  the  competent 
authority, it may reverse its decision during the transitional period.”;  

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(ii) in the second subparagraph, the second and third sentences are replaced by 
the following: 

“In such a case, the institution shall set A4 and t2 referred to in paragraph 1 as 
equal  to  zero.  Where  an  institution  has  received  the  prior  permission  of  the 
competent authority, it may reverse its decision during the transitional period.”; 

(iii) the following subparagraphs are added: 

“An institution that has decided to apply the transitional arrangements set out 
in  this  Article  may  decide  not  to  apply  paragraph  2  in  which  case  it  shall 
inform the competent authority of its decision without delay. In such a case, the 
institution  shall  set  A2  and  t1  referred  to  in  paragraph  1  as  equal  to  zero.  An 
institution  may  reverse  its  decision  during  the  transitional  period  provided  it 
has received the prior permission of the competent authority. 

Competent  authorities  shall  notify  EBA  at  least  on  an  annual  basis  on  the 
application of this Article by institutions under their supervision.”; 

(3) 

the following article is inserted: 

“Article 500a  
Temporary treatment of public guarantees related to the COVID-19 pandemic 

By  way  of  derogation  from  Article  47c(3),  until  [date  of  entry  into  force  of  this  amending 
Regulation + 7  years] the factors set out in Article 47c(4) shall also apply  to the part of the 
non-performing exposure guaranteed by an eligible provider referred to in points (a) to (e) of 
Article 201(1), where, subject to compliance with Union State aid rules, where applicable, the 
guarantee  or  counter-guarantee  is  provided  as  part  of  support  measures  to  assist  borrowers 
amid the COVID-19 pandemic. 

Article 2 
Amendments to Regulation (EU) 2019/876 

Article 3 of Regulation (EU) 2019/876 is amended as follows: 

(1) 

the following paragraph 3a is inserted: 

“3a.  The  following  points  of  Article  1  of  this  Regulation  shall  apply  from  [date  of 
entry into force of this amending Regulation]: 

(a) 

point (59), as regards the provisions on the treatment of certain loans granted 
by  credit  institutions  to  pensioners  or  employees  laid  down  in  Article  123  of 
Regulation (EU) No 575/2013; 

(b)  point  (133),  as  regards  the  provisions  on  adjustment  of  risk-weighted  non-
defaulted  SME  exposures  laid  down  in  Article  501  of  Regulation  (EU)  No 
575/2013; 

(c) 

 point  (134),  as  regards  the  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 laid down in Article 501a of Regulation (EU) No 575/2013 .”; 

(2) 

paragraph 5 is replaced by the following: 

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“5. Point (46)(b) of Article 1 of this Regulation, as regards the new requirement for 
own funds for G-SIIs laid down in Article 92(1a) of Regulation (EU) No 575/2013, 
shall apply from 1 January 2023.”; 

(3) 

paragraph 7 is replaced by the following: 

“7. Point (18) of Article 1 of this Regulation, as regards point (b) of Article 36(1) of 
Regulation  (EU)  No  575/2013,  containing  the  provision  on  the  exemption  from 
deductions  of  prudently  valued  software  assets,  shall  apply  from  the  date  of  entry 
into  force  of  the  regulatory  technical  standards  referred  to  in  Article  36(4)  of 
Regulation (EU) No 575/2013.”. 

Article 3 
Entry into force and application 

1. 

2. 

3. 

This Regulation shall enter into force on the day following that of its publication in 
the Official Journal of the European Union. 

This  Regulation  shall  apply  from  [date  of  entry  into  force  of  this  amending 
Regulation] with the exception laid down in paragraph 3. 

Point  (1)  of  Article  1  of  this  Regulation,  as  regards  the  changes  to  Article  429a  of 
Regulation (EU) No 575/2013, as amended by Regulation (EU) 2019/876, in relation 
to the offsetting mechanism attached to a temporary exclusion of certain central bank 
reserves, shall apply from 28 June 2021. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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