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November 19, 2021

Leaseurope proposals included in EC’s Basel IV package

By Alejandro Gonzalez

The European Commission has recognised the low risk posed by leasing in its recently published Banking Package 2021, which implements the Basel IV agreement across the EU, Leaseurope said in a statement.

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 the industry.

The EBA has been mandated to produce a 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 said it 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.

Leaseurope, the trade body representing the leasing and automotive rental industry in Europe, said it will follow negotiations with the European Parliament and the Council of the EU, which are likely to last until the end of 2022/ early 2023.

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