ECB consults on managing legacy NPEs in less significant institutions

The European Central Bank (ECB) has launched a consultation on a draft Guideline, accompanied by a press release, aimed at harmonising the supervisory approach of national competent authorities (NCAs) to non-performing exposures (NPEs) held by less significant institutions (LSIs). The Guideline seeks to address persistent legacy NPE challenges by establishing supervisory coverage expectations for exposures originated before 26 April 2019, which fall outside the scope of existing Capital Requirements Regulation deduction requirements. Developed in collaboration with NCAs, it reflects the ECB's oversight role within the Single Supervisory Mechanism, promoting the consistent application of high supervisory standards across participating Member States while allowing for the NCAs' supervisory discretion under the Pillar 2 framework. Building on the successful application of a similar approach for significant institutions since 2018, the Guideline is tailored to the specific characteristics of LSIs.

It introduces a risk-based, proportionate approach, enabling an NCA to annually determine which LSIs fall under its remit based on specific risk and contextual criteria. This is intended to help avoid distortive effects and ensures tailored supervisory follow-up on a case-by-case basis, taking into account the individual circumstances of each bank. Implementation will be phased in gradually from 31 December to 31 December 2028, with relevant reporting requirements based on a concise template closely aligned with the existing common reporting (COREP) data submissions. The deadline for comments is 27 October, after which the ECB will publish a feedback statement and the final Guideline. The consultation is accompanied by an FAQ.

Return to main website.