European Commission announced a banking package proposed to facilitate bank-lending in an effort to support the economy and mitigate the harsh economic impact of the coronavirus pandemic. The response aimed to encourage banks to utilize the flexibility within the EU’s prudential and accounting frameworks. The package includes “quick fix” amendments to EU banking rules as well as an Interpretative Communication on the EU’s accounting and prudential regulations. Flexibility in the EU’s regulatory framework covers the rules regulating how banks’ risk-assess of a borrower. It takes into account the inevitable event that some borrowers will not repay a loan due to the sudden economic crisis ensued by the COVID-19 pandemic will affect the amount of money set aside by the bank for any possible losses. It also considers flexibility within the prudential rules on the classification of non-performing loans in the case that relief measures, such as guarantee schemes and moratoria, have been provided by EU Member States or banks.
Commission is encouraging banks to make full use of the flexibility within the EU banking rules. The temporary legislative changes have been imposed to enable banks to keep liquidity flowing, ensuring that households and companies have the financing they need. With this relaxation of banking accounting rules lenders are able to continue extending loans to companies struggling during the crisis. The announcements present a coordinated EU response to the financial implication of the pandemic and is a great effort in avoiding national fragmentation. The Commission is taking an active role in engaging with the European financial sector to consider how best to develop further support systems for citizens and enterprises. There is also strong encouragement for banks to promote digital banking services which have seen a massive spike in engagement.
The role banks can play in helping businesses and citizens during the pandemic. This includes digital services, such as contactless and digital payments. The Interpretative Communication highlights this as an opportunity for banks to accelerate their digital finance development. However, the Commission also advises banks to approach digital banking with caution. The risk of financial crime is likely to increase under the current COVID circumstances.