Report on the assessment of SME proposals for CRD IV/CRR

22 October 2012

This report, requested by the European Commission, analyses the appropriateness of the Risk Weights (RWs) for Retail SME lending proposed in the CRDIV/CRR framework and assesses the possible effects of a reduction by one third in relation to the current regulation and the effect of an increase from EUR 1 million to EUR 5 million on the regulatory thresholds for SMEs. The report also includes proposals for alternative measures to be taken to create the right incentives to SME lending. This report was submitted to the European Commission in September 2012.

Based on Supervisory Authorities' data and Balance Sheet Central Banks data, the EBA's assessment concludes that a great caution should be exercised in altering the RWs or the threshold for SME Retail exposures to avoid any risk of jeopardising financial stability. However, the EBA, while understanding the SME financing constraints in Europe, would advise to consider alternative measures to provide the same capital alleviation, such as the introduction of a supporting discount, which would not act on RWs, but would be applied at the end of the process of capital calculation. These measures should be applied only to SME  exposures and not to the whole Retail exposure class.

Content of the report

The EBA's assessment report includes:

  • An illustration of the financial constraints of SMEs, which have triggered several calls for action, also in the area of banking regulation (section 1).
  • An overview of the proposals included the CRD IV/CRR framework regarding SMEs, comparing them with the current regime (section 2) and providing its evaluation (sections 3 to 6)
  • Further aspects of the proposals: its impact, consequences on financial stability and the effectiveness of the measures (sections 7 to 9).
  • Finally, it touches upon some other regulatory measures, which could be more promising and effective for SMEs' access to finance (section 10).

Background and EBA mandate

The EU Commission's CRD IV/CRR legislative proposal foresees an overall increase in capital requirements and also a higher quality of own funds with the view of strengthening the regulation of the banking sector and ultimately of creating a sounder and safer financial system.

The introduction of the so-called capital conservation buffer (2.5% of risk-weighted assets, in addition to the current 8% requirement) could potentially impact on SME lending. This measure, which will be phased in from 2016 to 2019, has raised the concerns of the SMEs sector, which argued that this requirement should be neutralised for SME exposures.

In July 2011 the European Commission mandated the European Banking Authority (EBA) to analyse the appropriateness of the current risk weights (RWs) of small and medium-sized enterprise (SME) lending, testing the possibilities for a scenario of a reduction by one third in relation to the current regulation and the impact of this on banking credit and the soundness of the financial system. Additionally, the EBA should analyse the impact of an increase from EUR 1 million to EUR 5 million on the regulatory thresholds for SMEs. 

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