For example, the industry had previously criticised the differences in the treatment of banks that originate and hold rated securitisation tranches versus banks that invest in the same exposures. The Committee will eliminate this difference. Instead, it will treat all rated exposures to securitisation structures in the same manner, regardless of whether they are held by an investing or an originating bank. This will furthermore streamline the proposals. Likewise, the Committee is introducing an internal-assessment approach for determining capital charges against exposures to certain low-risk unrated securitisation positions. Under the new treatment, banks will be allowed to derive the risk weights for unrated exposures to asset-backed commercial paper conduits (mainly liquidity facilities) by mapping their internal risk assessments to external credit ratings. This simplifies the rules by allowing qualifying banks to rely on existing processes and, at the same time, incorporates best practices into the securitisation framework. Other simplifications and improvements include the introduction of greater flexibility in calculating the capital charges on certain pools of assets that may underlie a securitisation transaction and the review of the calibration of the securitisation RBA risk weights to ensure a closer alignment with the level of risk inherent in the positions. Based on the positive initial reactions that we and our member agencies have received from the industry to date, the Committee is confident that the revisions will help to clarify and simplify the treatment of securitisation exposures.

By linking public investment and growth-enhancing reforms, it will help ensure a stronger and more uniform recovery across the euro area and accelerate the green and digital transitions. Euro area banking sector developments and financial stability issues The improving economic environment has contributed to a decline in near-term financial stability risks. Continued fiscal support helped the corporate sector recover from the pandemic, although the situation continues to vary across industries and firms. With corporate insolvencies remaining subdued, bank loan performance turned out to be more resilient than initially feared, although it is still too early to assess the full impact of the pandemic. Positive asset quality and financial market developments supported the return of bank profitability to pre-pandemic levels, and the ECB’s stress test results published in July showed that the euro area banking system would be resilient to adverse economic developments. Amid reduced uncertainty, the Supervisory Board of the ECB decided not to extend its systemwide recommendation on banks’ capital distributions. Instead, it returned to the previous supervisory practice of discussing capital trajectories and dividend or share buy-back plans with each bank in the context of the normal supervisory cycle. The ECB reminded banks to remain prudent when deciding on distributions and not to underestimate the risk that additional losses may later have an impact on their capital trajectories. As the economic recovery takes hold, financial vulnerabilities associated with an upswing are building up.