ECB and industry associations chime in on CRR III

The European Central Bank (ECB) published its opinion on the third Capital Requirements Regulation (CRR III) banking package containing both the ECB’s views and positions on the package, as well as drafting suggestions.

The ECB pushes back against a number of deviations introduced by the European Commission (EC) in its original proposal published last October, including the transitional provisions in the output floor with regards to the alpha factor in the standardized approach for counterparty credit risk (SA-CCR) and the exemptions in the credit valuation adjustment (CVA) risk framework.

In addition, the ECB pushes back against the powers given to the EC in regards to the Fundamental Review of the Trading Book (FRTB) to potentially delay the implementation by two years of the new market risk framework or apply a discount factor based on level playing field concerns. Instead, the ECB suggests replacing the delegated act powers with a report on third-country implementation of FRTB that could be followed by a legislative proposal.

In addition, the International Swaps and Derivatives Association (ISDA) and the Association for Financial Markets in Europe (AFME) published joint position papers on CRR III and the sixth Capital Requirements Directive (CRD VI). The position papers include recommendations and policy considerations across the various areas in the banking package, including the output floor, the CVA risk framework, FRTB and counterparty credit risk issues.

“The banking proposal was published by the European Commission at a time when policymakers are dealing with the fallout from the COVID-19 pandemic and the need to ensure a strong and sustained economic recovery. This makes it even more important that the package is carefully designed and calibrated so that it does not constrain banks’ ability to support the economy,” ISDA wrote.

CRR III also needs to be considered in the context of the EU’s urgent priorities to complete the Banking Union, reduce fragmentation of financial markets and develop and deepen Europe’s capital markets through the establishment of an effective Capital Markets Union.

At this stage, negotiations are still ongoing in the European Parliament and Council in the EU.

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