22 July 2013

EBA publishes a Recommendation on the preservation of capital

In December 2011, the EBA issued a Recommendation asking national supervisory authorities to ensure banks had sufficient capital to withstand unexpected losses in case of a further deterioration of the economic situation. Since the legal framework for assessing capital levels has changed with the entering into force of the so-called "CRD IV package", the EBA has decided to replace the 2011 recapitalisation Recommendation with a new measure on capital preservation.

In particular, the Recommendation on capital preservation asks competent authorities to ensure that banks maintain a capital floor in terms of nominal amount which corresponds to the amount of capital required to be in place by 30 June 2012 to meet the EBA's Recommendation.

Andrea Enria, Chairperson of the EBA said: "Preserving capital in European banks is essential for maintaining the flow of lending to the real economy".

In case banks fall below this nominal amount, they are expected to produce credible plans to restore their capital base. Only in specific circumstances will exceptions be granted on a case by case basis. Exceptions can be granted by national authorities, in consultation with the EBA, if a bank is undergoing a specific restructuring or a de-risking programme or if a bank's capital levels are deemed to already exceed the CET1 requirements under fully implemented CRD/CRR rules.

National authorities, in close cooperation with the EBA, will assess banks' capital plans during the transition to the CRD/CRR full implementation. To this end, banks will be requested to submit their capital plans and monitoring templates to their respective national authorities by 29 November, 2013. When reviewing capital plans, national authorities should discuss and challenge banks' assumptions, and consider the potential impact of stress events.

Press release

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