31 October 2014
The European Banking Authority (EBA) launches today a public consultation on its draft Regulatory Technical Standards (RTS) on materiality threshold of past due credit obligations. The EBA proposes a series of new conditions against which National Supervisory Authorities (NSAs) should set a materiality threshold for past due credit obligations. The consultation runs until 31 January 2015.
The CRR requires NSAs in the banking sector to set a materiality threshold that should help banking institutions to assess the materiality of their past due credit obligations, so that the occurrence of default can be defined in a harmonised manner across the EU. The parameters for CAs to set this threshold are to be defined by the EBA, which proposes in its draft RTS a series of conditions on both the structure and the application of the threshold.
According to the EBA, a materiality threshold should be composed of an absolute and a relative threshold, where the first refers to the sum of all amounts owed by the obligor that are past due for a required number of days and the second is defined as the percentage of that sum in relation to the total credit obligations of that obligor. The EBA proposes that when either or both of those limits are breached a default would be considered to have occurred.
This work aims at harmonising the significant differences in how materiality thresholds are presently implemented across the EU, resulting in relevant operational burden for cross-border institutions dealing with different requirements from different national authorities. However, the EBA is aware that the changes it proposes might require relevant adjustments and time. As part of the consultation, the Authority is seeking input on a reasonable time frame that EU institutions would need to implement its proposed framework.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 31 January 2015.
A public hearing will then take place at the EBA premises on 16 January 2015 from 10:00 to 12:30 UK time. All contributions received will be published following the close of the consultation, unless requested otherwise.
Legal basis and next steps
According to Article 178 of the Capital Requirements Regulation (CRR), EU institutions have to assess the materiality of credit obligations past due in order to define the default of an obligor. The CRR defines a default as the situation when an obligor is past due more than 90 or 180 days on any material credit obligation and requires EU competent authority to set a materiality threshold that should reflect a reasonable level of risk. The CRR also requires the EBA to specify the conditions according to which a competent authority shall set the threshold.