By Huw Jones
LONDON, Feb. 6 / PRNewswire / – Banks’ safety buffers in the European Union would rise by billions of euros under the proposed rules that allow lenders to capitalize on the value of software investments like cybersecurity.
Currently, a bank must subtract the value of software from its capital buffer in advance and add 36 key points to its core quota or mandatory measure of stability.
The European Banking Authority (EBA) announced that banks would be allowed to “amortize” or reduce the value of software for capital purposes over a period of three years.
With a sample of 64 banks, this would increase the capital by around 20.2 billion euros in 2020 and by 20 billion euros in 2021.
“The proposed approach should be easy to implement and applicable to all institutions in a standardized manner, as is the case today with deduction treatment,” the EBA said in a statement on Wednesday.
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EU policymakers had already agreed to relax the rule to help banks keep lending to pandemic-hit companies, and the European Commission is expected to stamp the EBA’s proposals to introduce them this year.
This is a big win for banks, which have long argued that current rules are preventing them from upgrading cybersecurity systems and innovating digital services for customers.
“The existing approach also distorts global competition, particularly when compared to the US, where banks can treat software investments as tangible assets that do not need to be deducted from a bank’s capital ratio,” a statement from the European Banking Federation said.
Last year, the EBA urged EU legislators to avoid hasty changes. Software is likely to be worthless when a bank goes bust because it cannot be sold separately.
UK regulators have opposed including the value of software investments in capital ratios and have found numerous high profile bank failures.
(Reporting by Huw Jones; editing by Kirsten Donovan).
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