Financial Services Regulation and Compliance - Banking July 2022

Domestic

Bank Lending Survey - July 2022 Results

On 20 July 2022, the Central Bank of Ireland (CBI) published the results of the most recent bank lending survey in Ireland. Banks recorded a moderate deterioration in their access to wholesale funding, in particular in access to medium and long-term securities over the last quarter. They expect this deterioration to continue in Q3. 

Banks were also asked to consider how their credit standards, terms and conditions and demand had changed across economic sectors. Banks reported that credit standards and, terms and conditions had tightened across all sectors in the past six months: manufacturing, construction, services, wholesale and retail trade, and real estate. In the next six months, credit standards were expected to tighten for wholesale and retail trade, as well as for commercial real estate, but no change was expected to terms and conditions or demand. 

The key findings of the survey are set out below.

  • Credit standards on loans to enterprises were unchanged in Q2 2022, with standards expected to tighten marginally in Q3 2022.
  • Demand for loans by enterprises decreased marginally in Q2, with the decline expected to persist in Q3.
  • Credit standards on loans to households for both house purchase and for consumer credit tightened slightly in Q2, but are expected to be unchanged in Q3.
  • Household demand for loans for house purchase increased in Q2 2022, but is expected to decrease in Q3.
  • Demand for loans for consumer credit and other lending also increased in Q2, but is expected to decrease in Q3.

Update to the implementation notice for competent authority options and discretions in the CRR/CRD

The CBI is proposing to update the November 2021 version of the implementation notice regarding options and discretions (O&Ds) in the Capital Requirements Regulation and the Capital Requirements Directive. This is in view of the recent revisions made by the ECB it its O&D framework, along with revisions made to the prudential regime for investment firms as a result of the adoption of the Investment Firm Directive (2019/2034) and Investment Firm Regulation (2019/2033). At a high level, the CBI is proposing that recent revisions to the ECB O&D framework would be applied to less significant institutions in full, while O&Ds will continue to be exercised in a harmonised manner with respect to credit institutions and those investment firms that remain under the scope of the notice. This consultation period opened 18 July 2022 and ceases on 18 October 2022.

European

EBA consults on revised guidelines on methods for calculating contributions to deposit guarantee schemes

On 29 July 2022, the European Banking Authority (EBA) launched a public consultation on its draft revised guidelines on deposit guarantee schemes (DGS) contributions. The revised guidelines aim to enhance proportionality between the risk of a credit institution and its contributions to the DGS and at streamlining and simplifying the original guidelines. The consultation runs until 31 October 2022.

The guidelines on DGS contributions harmonise the methodology for the DGS to collect contributions from credit institutions in proportion to their riskiness. The most substantial proposals included in this consultation paper are to:

  • set minimum thresholds for the majority of core risk indicators and adjust their minimum weights to better reflect the indicators’ performance in measuring the risk to the DGSs
  • introduce an improved formula for determining the risk adjustment factor of each member institution that ensures a constant relationship between the riskiness of institutions and their DGS contributions
  • specify how to account for deposits where the DGS coverage is subject to uncertainty, including in relation to client funds, thus ensuring closer alignment between the amount of covered deposits of a credit institution and its contributions

July 2022 euro area bank lending survey

On 19 July 2022, the Euro Area bank lending survey results were published. According to the July 2022 euro area bank lending survey, credit standards – i.e. banks’ internal guidelines or loan approval criteria – for loans or credit lines to enterprises tightened considerably further in the second quarter of 2022. Regarding loans to households for house purchase, euro area banks reported a strong net tightening of credit standards (net percentage of 24%), while credit standards for consumer credit and other lending to households tightened moderately (net percentage of 9%).

In the context of high uncertainty, continuing supply chain disruptions and high energy and input prices, banks cite perceptions of increased risk and lower risk tolerance as factors behind the net tightening of credit standards for firms. As monetary policy is becoming less accommodative, euro area banks also reported that their cost of funds and balance sheet constraints had contributed to the tightening of credit standards for loans to firms and households.

For the third quarter of 2022, they expect a net tightening of credit standards for loans to firms of a similar magnitude to that in the second quarter (18%). In addition, euro area banks expect credit standards to continue to tighten for both housing loans (24%) and consumer credit (13%).

Sanctions imposed in response to the crisis in the Ukraine

Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.

For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.

Date published: 16 August 2022