27 May 2020
The European Banking Authority (EBA) published today an Opinion following the notification by the French macroprudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR) to safeguard institutions from excessive risk-taking and to prevent the build-up of future vulnerabilities. The measure intends to tighten, for French global or other systemically important institutions, the large-exposure limits applicable to large and highly indebted non-financial corporations (NFCs) resident in France or groups of connected NFCs assessed to be highly indebted and based in France. Based on the evidence submitted, the EBA does not object to the extension of the proposed measure, which will be applied from 1 July 2020 to 30 June 2021.
In particular, with the application of this measure, French systemically important institutions will not incur an exposure exceeding 5% of their eligible capital for NFCs or for groups of connected NFCs assessed to be highly indebted. The 5% limit will act as a backstop to safeguard these institutions from excessive risk-taking and prevent the build-up of future vulnerabilities.
In its Opinion, addressed to the Council, the European Commission and the French Authorities, the EBA acknowledges that the objective of limiting indebtedness levels of large and already indebted French NFCs is appropriate with a view to promoting financial stability and preventing future systemic shocks to the French and EU economies. The EBA also encourages the French authorities to monitor closely the developments during the COVID-19 pandemic and to be ready to de-activate the measure promptly if it leads to unintended consequences.
In light of this conclusion, the EBA does not object to the extended deployment, by the HCSF, of the proposed macroprudential measures, which will be applied from 1 July 2020 to 31 June 2021.
Already in its Opinion issued on 13 March 2018, the EBA did not object to the adoption of this measure, taking into consideration the measure’s objectives of resilience (limiting concentration risks) and prevention (intensifying the vigilance about high leverage of NFCs).