Communication of 30 June 2021: Exclusion of certain exposures to central banks from the leverage ratio calculation in light of the COVID-19 pandemic - Exercise of discretion for less significant banks

1 Communication of 30 June 2021. Exclusion of certain exposures to central banks from the leverage ratio requirement calculation in light of the COVID-19 pandemic - Exercise of discretion for less significant banks.

Regulation (EU) No 876/2019 (so-called CRR 2), which amends Regulation (EU) No 575/2013 (so-called CRR), introduces a Pillar 1 leverage ratio requirement of 3% as of 28 June 2021.

The new rules provide, among other things, that banks may, for a period not exceeding one year, exclude from the total exposure measure used for the calculation of the ratio exposures to central banks (represented by: a) coins and banknotes that constitute legal tender in the country of the central bank; and b) assets representing claims on the central bank, including reserves held at the central bank), if the competent authority has established, after consultation with the relevant central bank, and publicly declared the existence of exceptional circumstances justifying the exclusion in order to facilitate the implementation of monetary policies (Article 429a, paragraph 5, CRR).

On 18 June 2021, the European Central Bank (ECB), in its capacity as a central bank, confirmed for the euro area the existence of exceptional circumstances for the exclusion of exposures to the central bank from the leverage ratio calculation to support the transmission of monetary policy (1). The ECB Governing Council indicated 31 December 2019 as the start date of the exceptional circumstances.

Taking into account what was declared by the ECB, with this communication the Bank of Italy establishes and publicly declares that: a) exceptional circumstances exist which, in order to facilitate the implementation of monetary policies, justify the exclusion from the total exposure measure for the calculation of the leverage ratio of exposures to the central bank referred to in Article 429a, paragraph 1, point (n), CRR; b) the exceptional circumstances began on 31 December 2019.

The exclusion of the exposures referred to in Article 429a, paragraph 1, point (n), point (ii), CRR applies to exposures to the central banks of the Eurosystem referred to in Article 2, paragraph 3, of the European Central Bank Decision of 18 June 2021 (2).

Taking into account the need to facilitate the implementation of monetary policy measures adopted as a consequence of the situation generated by the COVID-19 pandemic and the currently expected duration for net purchase programs under the Pandemic Emergency Purchase Programme (PEPP), the exclusion applies from 28 June 2021 to 31 March 2022.

Given the context of necessity and urgency and taking into account that the granting of the exemption does not result in additional costs for operators, the Bank of Italy has not conducted a public consultation nor an impact analysis (3).

1 See Communication of the ECB Governing Council of 18 June 2021 (https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210618~08d3c92b21.en.html) and Communication of the ECB Governing Council of 17 September 2020 (https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200917~f3f03398d2.it.html). 2 Exposures to Eurosystem central banks relating to deposits held in central bank deposit operations (deposit facility) or balances held in reserve accounts, including funds held to satisfy minimum reserve requirements. See Decision of the European Central Bank of 18 June 2021 on the temporary exclusion of certain exposures to central banks from the total exposure measure in view of the COVID-19 pandemic and repealing Decision (EU) 2020/1306 (ECB/2021/27); https://www.bankingsupervision.europa.eu/ecb/pub/pdf/en_ssm_2021_27_f_sign~5eea0a5feb..pdf. 3 See Article 8, paragraph 1, of the Measure of 9 July 2019 "Regulation concerning the rules for the adoption of acts of a normative or general content by the Bank of Italy in the exercise of supervisory functions, pursuant to Article 23 of Law No 262 of 28 December 2005."

2 This communication has the nature of a binding general normative act for less significant banks and banking groups and enters into force the day following its publication on the Bank of Italy website.