Proposal for lower risk weights for leasing in Europe (Basel IV)
May 2021
Leaseurope is actively engaging with the European Commission on the low risk profile of leasing, advocating for them to differentiate leasing with a lower risk weight in their proposal to implement Basel IV in Europe (the upcoming CRR III).
Dialogue with policymakers
Existing prudential regulations within the European Capital Requirements Regulation (CRR) do not reflect the real risks of leasing exposures and proposals in the new Basel IV standard, if implemented in Europe as such, would increase the regulatory capital required for leasing even further. This will have a major impact on finance providers subject to these rules if the low risk of leasing portfolios is not recognised adequately, leading to substantially over-conservative capital requirements. Rectifying this situation has been a primary focus of Leaseurope for a number of years.
Following an extensive dialogue between Leaseurope and the Cabinets of Mr. Dombrovskis, Ms. Vălean and Ms. McGuiness, Leaseurope drafted a proposal for specific risk weights for movable leasing under the standardised approach, subject to certain strict conditions being met. We have reiterated to European policy makers that leasing should no longer be treated in the same manner as unsecured bank loans within the prudential regulatory framework as the business model and the risks are completely different.
What to expect going forward?
Our proposal is currently being considered by the European Commission, who are expected to publish their draft text for a new CRR III at the end of this summer. After the European Commission text is public, we expect around two years of negotiations between the Commission, the European Parliament and the European Council before a final text is agreed. While the European Commission is already very aware of the difficulties faced by lessors within the current prudential framework, it will be essential that members of the European Parliament and Council are also well informed on this topic during their negotiations. Leaseurope is working together with our national member associations to reach out to Members of the European Parliament (MEPs) and national ministries to ensure that all the elements of our proposal are well understood. If the capital requirements for lessors were more in line with the real risks inherent in the business model, this would increase the amount of support leasing firms could provide to European businesses, particularly SMEs, during their short-term Covid-19 recovery as well as their longer-term sustainability transition.