DBRS has recently published a commentary titled “DBRS: New Coverage Rules for NPLs Positive , but Uncertainty Remains.”
According to the Rating Agency, in essence:
- the new rules from the ECB and EC for minimum loss coverage are positive and the impact across banks is expected to be manageable;
- both authorities are targeting the same goal, but applying two different sets of rules and this may create some regulation uncertainty;
- while the EC Proposal will be the minimum standard for Banks, the ECB has the means to go further on a case by-case basis for affected Banks.
While I can somehow agree on the potential confusion between the 2 sets of rules, I would stress that ECB Guidelines are more focused moral suasion and aimed to promote best practices in risk understanding and management rather than prescribing mandatory accounting standards.
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GLG – Gerson Lehrman Group – Council Member