Leaseurope proposals included in new Basel IV package
The European Commission has recognised the low risk of leasing in their recently published Banking Package 2021, which implements the Basel IV agreement in the EU amongst other things.
Leasing specific treatment for capital requirements
The European Commission’s review of EU banking rules includes legislative proposals which amend the Capital Requirements Regulation (CRR III) and the Capital Requirements Directive (CRD V). The proposed CRR III includes some of the key Leaseurope proposals to mitigate the impact of Basel IV on leasing companies and to adequately adjust the EU prudential framework to reflect the low risk profile of leasing. The text includes a specific paragraph for leasing, which recognises the high level of expertise and the strong risk management developed over the years by our industry. The EBA has been mandated to produce their own research report by 30 June 2026 on the appropriateness of the Basel risk parameters applicable to leasing exposures, in particular new collateral haircuts and regulatory values for secured LGD. This research should also include default and loss statistics for leasing by asset type and business model. Following this report, the Commission may revise the calibration for leasing via a delegated act, if appropriate. In the interim, leasing has been granted a five-year phasing in period for applying the new risk parameters under the A-IRB approach.
The proposal is a significant achievement for recognising the risk mitigating effect of lease collateral for capital requirements and improves markedly on the original Basel IV text. We will follow this closely during negotiations with the European Parliament and the Council of the EU, which we expect to last until end 2022/ early 2023.