Banking Authority Research Articles

Surmounting an existential challenge: The European banking authority’s search for a sustainable supervisory role after the banking union

With the advent of the Banking Union and its confluence with the single banking market, the European Banking Authority (EBA) has been pushed into an ‘existential search’ for a sustainable role in supervisory policy. This is a challenging task whose success is dependent on the EBA’s ability to deal with policy diversity across member states. This paper examines the relationship between the EBA and member states by focusing on the authority’s internal governance and its ‘national anchoring’. Challenging the political economy critique that overstates the disadvantages of national anchoring, the paper draws on experimentalist governance scholarship, as well as several original data sources, to argue that such anchoring is critical for the EBA to overcome its existential challenge. To support this claim, the paper examines the EBA’s core supervisory activities: first, the development of guidelines for the Supervisory Review and Evaluation Process (SREP), and second, its enforcement powers in cases of explicit breach of EU law. Its findings suggest first that the future of the EBA’s role lies in supervisory convergence rather than enforcement; and second, that national anchoring allows the authority to make the most of experimentalist practices and should thus be viewed as an internal governance advantage.

ESG, Risk, and (Tail) Dependence

While environmental, social, and governance (ESG) trading activity has been a distinctive feature of financial markets, the debate if ESG scores can also convey information regarding a company's riskiness remains open. Regulatory authorities, such as the European Banking Authority (EBA), have acknowledged that ESG factors can contribute to risk. Therefore, it is important to model such risks and quantify what part of a company's riskiness can be attributed to the ESG scores. This paper aims to question whether ESG scores can be used to provide information on (tail) riskiness. By analyzing the (tail) dependence structure of companies with a range of ESG scores, that is within an ESG rating class, using high-dimensional vine copula modelling, we are able to show that risk can also depend on and be directly associated with a specific ESG rating class. Empirical findings on real-world data show positive not negligible ESG risks determined by ESG scores, especially during the 2008 crisis.

Green Quadriga? - EU - Taxonomy, TCFD, Non-Financial-Reporting Directive and EBA ESG Pillar III/ IFRS Foundation

After years of inactivity, sustainability finance is erupted like the Iceland volcano Eyjafjallajökull. Several regulators have been proposing or are proposing new requirements on sustainability reporting, ESG metrics and standardization of ESG disclosures. The EU taxonomy issues by the EU commission, the task-force on climate-related disclosures, finance (TCFD), The European Banking Authority (EBA) launches consultation on Environmental, Social and Governance (ESG) risks as well as IFRS Foundation on sustainability reporting and the Non-Financial Reporting Directive also reflecting the European Green Dela (EGD). In order to meet the EU climate and energy targets for 2030 and reach the objectives of the European Green Deal, it is fundamental to direct investments towards sustainable projects and activities. The current COVID-19 pandemic has reinforced the need to redirect capital flows towards sustainable projects in order to make our economies, businesses and societies, in particular health systems, more resilient against climate and environmental shocks and risks with clear co-benefits for health. To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. This is why the action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or an “EU taxonomy” the EU Commission Non-financial Reporting Update (NFRD) however issues which are material to environmental and social objectives can have financial material impact. The EU Taxonomy Regulation establishes six environmental objectives: Climate change mitigation, Climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy and the pollution prevention and control. This research note assesses and comments deliverables from the EU commission.

Assessing and Mitigating Fire Sales Risk Under Partial Information

We consider the problem of assessing and mitigating fire sales risk for banks under partial information. Using data from the European Banking Authority's stress tests, we consider the matrix of asset holdings of different banks. We first analyse fire sales risk under both full and partial information using different matrix reconstruction methods. We then investigate how well some policy interventions aimed at mitigating fire sales risk perform if they are applied based on only partial information. We compare the performance of policy interventions under full and partial information. We find that even under partial information, using suitable network reconstruction methods to decide on policy interventions can significantly mitigate risk from fire sales. Furthermore, we show that some interventions based on reconstructed networks significantly outperform ad hoc methods that decide on interventions only based on the size of an institution and do not account for overlapping portfolios.

A Universal Stress Scenario Approach for Capitalising Non-modellable Risk Factors Under the FRTB

EU legislators mandated the European Banking Authority to propose a stress scenario methodology for capitalising non-modellable risk factors (NMRF) as foreseen under the Basel Fundamental Review of the Trading Book (FRTB) rules for market risk. In this paper, we present the foundations of such a methodology. By design, it is universally applicable to all kinds of risk factors to which a bank may be exposed, and it caters for a wide range of data availability by adjusting the stress scenario for the number of returns observed in the calibration period. It captures non-linearities in the portfolio loss profile against changes in the NMRF, while reducing the computational effort and being simple. To motivate the values set for some parameters in the methodology, we use a set of skewed generalised ‘t’ (SGT) distributions as a generic tool for describing a wide universe of real historical returns from all asset classes. Finally, we extend the methodology from single risk factors to segments of curves or surfaces as envisaged in the FRTB.

Green Quadriga? - EU - Taxonomy, Non-Financial Reporting Directive, EBA Pillar III ESG risks and IFRS Foundation

After years of conceptual discussions, sustainability finance is uplifted to the execution agenda. Several regulators have been proposing or are proposing new requirements on sustainability reporting, ESG metrics and standardization of ESG disclosures. The EU-Taxonomy issued by the EU commission, the European Banking Authority (EBA) launches consultation on Environmental, Social and Governance (ESG) risks as well as the IFRS Foundation on sustainability reporting and the Non-Financial Reporting Directive(NFRD) also reflecting the European Green Deal (EGD). This research note assesses and comments these green initiates, which have different underpinnings and implications for market participants. In order to meet the EU climate and energy targets for 2030 and reach the objectives of the European Green Deal, it is fundamental to direct investments towards sustainable projects and activities. The current COVID-19 pandemic has reinforced the need to redirect capital flows towards sustainable projects in order to make our economies, businesses and societies, in particular health systems, more resilient against climate and environmental shocks and risks with clear co-benefits for health. To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. the EU Commission Non-financial Reporting Update (NFRD) however issues which are material to environmental and social objectives can have financial material impact. This is why the action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or the “EU taxonomy”. The EU-taxonomy represents the most comprehensive classification schema for sustainability on a worldwide basis. The research note concludes with a summary of all four initiative and the assessment that the initiatives need to be coordinated and reconciled to each other, particularly the NFRD and the EBA Pillar 3 disclosures on environmental, social, and governance (ESG) risks.

Expected Impact of the Introduction of the Leverage Ratio at the Hungarian and EU Level

From June 2021, a new set of mandatory requirements will enter into force in the European Union for all credit institutions registered in the EU, specifying in detail the method of calculating the leverage ratio and its minimum level. In this paper, we summarise the main criteria of leverage ratio regulation, the reasons for its introduction and the criticisms that have been expressed. We examine the likely impact of the new requirements as well as the types of credit institutions that may be most affected, and how the leverage ratio relates to different elements of the prudential regulations already in place. Through theoretical and practical examples, we seek to answer the question of when the leverage ratio can become an effective constraint on capital adequacy requirements and for which institutional characteristics it can function as their ideal complement. For this study, we have drawn on the international academic literature on the leverage ratio, analyses by the European Banking Authority and data available from supervisory reporting. We conclude that the leverage ratio in its current form does not have a significant impact on the majority of credit institutions in Hungary, and even at the international level it will primarily only represent an actual constraint for credit institutions which operate with a specific business model and low average risk weights

Do Bank Competition and Risk-Taking Matter for Performance in the MENA Countries?

This paper analyzes the impacts of bank competition and risk-taking on performance in MENA countries. We use an unbalanced panel dataset over the period 2011-2017 for the MENA countries. This study uses the two-stage least square (2SLS) estimator to test the results, and we use the generalized method of moments (GMM) to test the robustness check. Aftermaths of the data analysis, it finds that lower competition has a benefit in both risk and financial stability. Hence, the lower competition will reduce the risk-taking behavior. As a result, it will increase the financial stability in the banking systems. Our results show the inverse relation of the structure conduct performance (SCP) hypothesis. Our results also show that the MENA country's (banks) profitability is significantly affected by the size, taxation, cost management, capitalization, GGDP, and inflation. Finally, the study also recommends some policy implications for example MENA countries should shrink tax rates for Islamic banks as well as commercial banks; tax burden should hand over from bank authority to potential buyers. They should focus on the development of the banking sector and employ more skilled and experienced staff. Islamic Bank should restructure to disburse loans and raise capital. The focus should be on promoting them through the diversified activities of Islamic Banks.

Single Supervisory Mechanism and corporate finance: A DSCR based approach for AQR prudential provisioning

Asset quality review (AQR) conducted by the European Central Bank (ECB) introduced 2014 indicators and logic typically used in the context of corporate finance. The new approach tries to overcome the backward-looking approach in favour of a completely forward-looking perspective based on the assessment of cash flows. From the AQR point of view, EBITDA and DSCR have taken particular importance also in the prudential provisioning process. As is known, the AQR manual, for calculating the prudential provisioning, provides that banks, in a going-concern perspective, estimate the recoverable amount of loans by appropriately discounting the cash flows. Our work, although under some hypotheses, highlights limitations in the prudential regulatory approach. The paper, using a DSCR-based dual-leg approach, tries to propose a generalisation logically consistent with the guidelines on loan origination and monitoring recently expressed by the European Banking Authority (EBA) (EBA, 2020). Although there is literature dealing with access to credit constraints (Demirgüç-Kunt & Maksimovic, 1999; Beck & Demirgüç-Kunt, 2008; Calabrese, Girardone, & Slip, 2020), with the relationship between credit risk management framework and accounting standard (Porretta, Letizia, & Santoboni, 2020) and with loan loss coverage policies (Alessi, Bruno, Carletti, Neugebauer, & Wolfskiel, 2020), no empirical or theoretical research analyses the relationship between prudential provisioning and underlying incentive structure. This paper offers a contribution in this regard highlighting how an economic approach for provisioning tends to reward companies capable of generating adequate prospective cash flows given the contractual structure of the loan, thus mitigating the potential allocative distortions implicit in the incentive structure underlying the AQR approach.

Monetary Policy and Inequality

The article provides a literature review of studies of the impact of monetary policy on income and wealth inequality. Based on the analysis and systematization of the articles mainly written over the past 25–30 years as well as articles written by central bank authorities, the main approaches to assessing the extent to which the Fed's actions are responsible for the growth of wealth inequality in the United States, which began in the 1970s, are identified. It was revealed that the relative unanimity of economists on this issue was replaced by significant pluralism of opinions after the crisis of 2007–2009. Among other reasons this was caused by the activity of central banks and their use of non-conventional approaches in conducting the monetary policy. In addition, the channels through which the actions of central banks affect the distribution of wealth in the economy are identified. In total, five such channels were singled out. Thus, changes in the monetary policy affect the debt market and the structure of assets and liabilities of households, while households with fixed incomes and with a high propensity to use cash are more likely to suffer losses during the expansionary monetary policy. And the fifth channel, which is less popular among the economists, the "Cantillon effect", leads to an increase in the wealth of the first recipients of the issued money at the expense of those who are farthest from the center of emission. The article provides empirical evidence of why this effect is significant for the American economy, and theoretical arguments indicating that taking the Cantillon effect into account can add certainty to studies of both monetary policy costs and institutional changes caused by rising inequality.

EBA's Capital Exercise and Technical Efficiency of the Banks

This study uses a sample of 194 banks from 15 EU countries and two-stage data envelopment analysis (DEA) to provide evidence on the impact of the European Banking Authority (EBA)'s capital exercise on banks' efficiency. In the first stage of the analysis, we measure the efficiency by employing DEA. We then use Tobit regression to investigate the impact of the capital exercise on banks' technical efficiency. We estimate several specifications while controlling for bank-specific attributes and country-level characteristics accounting for macroeconomic conditions, financial development and market structure. The results indicate that EBA's capital exercise came, as a shock for the banks would be contributing towards making the banks more stable. It would be preventing banks from excessive risk-taking activities. Furthermore, it would be allowing the banks to withstand the financial distress and contributing in banks be- coming less prone to the systemic risk. The study finds that the capital requirements would be creating favourable economic conditions, which would be, affect the extent, depth and quality of financial intermediation and banking services.

Modeling Non-Maturing Demand Deposits: On the Determination of the Threshold of Separation Between Volatile and Stable Deposit Volumes

This paper aims to develop a methodology for the estimation of the idiosyncratic confidence level inherent within the process of determining the threshold of separation between volatile and stable deposit volumes. The idiosyncratic confidence level must be reflective of the institution's specific risk preferences and liquidity risk management policies as anchored into the Principle 9 of the EBA (European Banking Authority) and BCBS (Basel Committee for Banking Supervision) recommendations. We develop the methodology by including the new liquidity constraints from the Basel III regulatory recommendations introduced in 2013 (LCR and NSFR). For the determination of the con fidence level we utilize these liquidity constraints given by their respective critical thresholds. Once the dynamics of the factor process including LCR and NSFR are estimated, the implicit con dfience level can be calculated. We further illustrate the application of the methodology via processing a data time series stemming from a fi ctional European savings bank. Furthermore, we point to other ancillary applications of these procedures in the financial risk management practices.

Transparency and accountability influences of regulation on risk control: the case of a Swedish bank

This qualitative in-depth case study explores the influence of financial regulation on risk control within Banque de Montagne, a large listed bank in Sweden. Specifically, the purpose of this paper is to investigate the impact of the European Banking Authority´s Guidelines on Internal Governance (GL 44), through Swedish Financial Regulation FFFS 2014:1, on the bank’s risk organization along the three lines of defense model of internal control. FFFS 2014:1 requires banks to reform risk control structures, processes, and roles through a mandated split between the operational risk and compliance functions of the internal risk organization. Through an analysis of 41 interviews, more than 2100 pages of internal and external documents, and over 200 hours of observations from 2015 to 2017, the research identifies the relevant changes to transparency and accountability mechanisms across the three lines of defense within the organization. The operationalization of these concepts through risk control mechanisms is an important consideration for both banks and regulators who rely on the three lines of defense model as an industry-wide adoption for effective risk control. The findings suggest that whilst intra- and inter-organizational accountability mechanisms have strengthened under the changed organizational structure through the implementation of FFFS 2014:1, challenges to effective transparency remain and may have ambiguous consequences for both organizational and regulatory aims

The Markets in Crypto-Assets Regulation (MICA) and the EU Digital Finance Strategy

The European Commission published its new Digital Finance Strategy on 24 September 2020. One of the centrepieces of the Strategy is the draft Regulation on Markets in Crypto-Assets (MiCA), designed to provide a comprehensive regulatory framework for digital assets in the EU. With MiCA the EU Commission has proposed bespoke regulation for utility tokens and stablecoins including payments tokens, asset-backed tokens and “significant” stablecoins (including “global stablecoins”). As to investment and securities tokens, the EU Digital Finance Strategy relies on the existing body of EU financial and securities law, with the Prospectus Regulation, the MiFID framework as well as the UCITSD and AIFMD at its core, with the intention to incorporate necessary changes as part of the existing ongoing amendment and review processes. MiCA provides for a bespoke prospectus regime for crypto-assets, with the issuing of e-money tokens (i.e. payment tokens), asset-referenced tokens (also known as stablecoins) and crypto-asset services being regulated activities subject to licensing. While supervision of crypto-asset service providers (CASPs) will rest with national authorities, supervision of significant asset-referenced and e-money tokens will rest mainly with the European Banking Authority. The EU Digital Finance Strategy marks a very important step for the EU in developing both innovation and the Single Market. At the same time, while MiCA is an ambitious legislative project, there is room for improvement. First, the scope of MiCA remains uncertain as the draft MiCA does not clearly delineate between utility tokens subject to MiCA and investment tokens subject to EU securities law. Second, a systematic approach to EU law is absent. Thresholds and concepts known from other EU laws should be firmly embedded in MiCA. Third, a framework for supervisory cooperation with regard to truly global stablecoins is missing.

A meta-crisis banking efficiency study in the MENA region

Purpose The purpose of this paper is to comparatively examine the cost and the overlooked revenue efficiency of Islamic and commercial banks in the aftermath of the crisis, operating in nine MENA-based countries during the 2010-2017 financial period, where the established empirical work is relatively limited. The authors also update the research where they use recent data sets and they provide for a targeted, structured literature review pre- and post-crisis in the Gulf region. Design/methodology/approach The authors examine cost and revenue efficiency of 25 major Islamic banks (IBs) and 25 major conventional banks (CBs). They conduct tests on the determinants of such variables. In the first stage of the analysis, they measure efficiency by using the data envelopment analysis (DEA) technique. The analysis performs regressions where these also reveal that the bank efficiency index is influenced by various bank type-specific attributes. It also seems that tighter restrictions on bank activities are negatively associated with bank efficiency. Second stage analysis, which accounts for banking environment and bank-level characteristics, confirms these results. Findings Conventional banks are both more cost and revenue efficient than Islamic banks over the period under examination. The analysis also reveals that the bank efficiency index is influenced by bank-type attributes. Greater presence of fixed capital resources has positive effects on growth in both Islamic and conventional banking. The major constraints impeding Islamic banking growth include labour costs. The authors examine whether and how bank-type orientation affects the cost and revenue efficiency of conventional and Islamic banks. They find that post-crisis Islamic banks underperform their conventional counterparts on both accounts within a mixed banking system. Research limitations/implications This study did not include comparative data before the 2008 financial crisis. There is also a great deal of heterogeneity among Islamic banks in the samples that have been examined here and by other researchers and the constructed efficiency scores should be interpreted cautiously as divergent Islamic banks are pooled in the same samples. Practical implications This study identified factors that may help bank managers to improve their financial outlook by controlling revenue and cost efficiency profitability. These factors could as well help to understand how some indicators affect both cost and revenue efficiency, particularly in Islamic banking. It also seems that tighter restrictions on Islamic bank activities are negatively associated with bank efficiency. Islamic banks that directly compete with their conventional counterparts in the aftermath of the crisis are less efficient on both the cost and revenue frontiers. They are potentially hindered by the differential regulations of supervising authorities in dual banking systems. Social implications The authors provide recommendations regarding regulatory and other issues that are relevant to Islamic banking and further research is suggested. Findings are relevant to a variety of stakeholders (managers, policymakers and regulators). Islamic banking authorities could re-examine the benefits of partially moving to a more standardized/conventional system of banking by lifting some trading restrictions. In addition, developing and maintaining managerial skills is an indispensable instrument for the long-term endurance of any system. A related aspect is thus an effort to determine the holistic efficiency (including managerial) of Islamic banks as a guide for policymakers to improve managerial performance. Originality/value There is relatively limited empirical work that investigates the efficiency between Islamic and conventional banking in the aftermath of the crisis in the Gulf region despite the growing importance of this region on political and economic levels. The authors also examine the revenue efficiency measure often under-researched in the literature and particularly important for comparative studies. Overseas-owned banks have attained much higher infiltration levels in middle-eastern countries over the past decade. It has also been suggested that market penetration differences may also be related to bank efficiency concerns among countries and their financial systems as opposed to types of banks.

Valuation of Non-Performing Loans under Discussion

In March 2018, the ECB published “Addendum to the ECB Guidance to banks on non-performing loans: supervisory expectations for prudential provisioning of non-performing exposures” in which it required non-performing loans originated after 1 April 2018 to be fully written down after 7 years, with unsecured loans to be written offer after only 2 years. In practice, this approach implies the use of a null value: i) after seven years for secured non-performing loans and ii) after two years for unsecured loans, with an accounting provision for an equivalent amount. European Banking Authority (EBA) statistics for 2019 show that provisions for non-performing loans in Europe were 44.9% (Note 1), corresponding to an NPL valuation of 55.1%, which is higher than the implicit value in the prudential provisions recommended by the ECB. The ECB's new guidelines on provision levels and the implicit value of such provisions creates serious doubt about banks' estimated fair values of NPLs, as per what they book in their accounts. This article aims to use the disclosures provided by listed Italian banks in their notes to the accounts from 2009 to 2019 to determine if the fair value for NPLs, as divided between the secured part and the unsecured part, is value relevant and the amount of any discount/premium applied by the financial market compared to the actual fair value that is booked. The results highlight the excessively prudential nature of completely writing off non-performing loans and justify a review of the approach adopted by the European Council and Parliament in August 2019 (and subsequently adopted by the European Central Bank) in which unsecured NPLs should be fully written off after 3 years (compared to 2 years before), NPLs secured by real estate after 9 years (compared to 7 years before) and NPLs secured by non-real estate guarantees after 7 years (confirming the previous approach) for all loans originated after 26 April 2019.

Moving toward the Expected Credit Loss Model under IFRS 9: Capital Transitional Arrangement and Bank Systematic Risk

This paper examines banks’ option to adopt the capital transitional arrangement (CTA) set out by the Basel Committee on Banking Supervision, in response to the introduction of the International Financial Reporting Standard 9 (IFRS 9), which requires the use of an expected credit loss model instead of an incurred loss model to estimate the impairment of financial assets. Using a sample of publicly listed European banks from 2016 to 2019, we find that bank CTA adoption choice is associated with neutral factors captured by bank-specific fundamental characteristics, and potential opportunistic factors related to regulatory constraints implied by the application of IFRS 9. We further find that banks that adopted the CTA (CTA adopters) decrease their exposure to systematic risk during the transitional period. However, this relationship is only significant in countries with powerful banking authorities. In those with less powerful banking authorities, CTA adopters tend to exercise more aggressively their accounting discretion. Our study is the first to address banks’ voluntary choice to adopt the CTA policy under the mandatory application of IFRS 9.

From stress testing to systemic stress testing: The importance of macroprudential regulation

Stability of the banking system and macroprudential regulation are essential for healthy economic growth. In this paper we study the European bank network and its vulnerability to stressing different bank assets. The importance of macroprudential policy is emphasized by the inherent vulnerability of the financial system, high level of leverage, interconnectivity of system's entities, similar risk exposure of financial institutions, and susceptibility for systemic crisis propagation through the system. Current stress tests conducted by the European Banking Authority do not take in consideration the connectivity of the banks and the potential of one bank vulnerability spilling over to the rest of the system. We create a bipartite network with bank nodes on one hand and asset nodes on the other with weighted links between the two layers based on the level of different countries’ sovereign debt holdings by each bank. We propose a model for systemic risk propagation based on common bank exposures to specific asset classes. We introduce the similarity in asset distribution among the banks as a measure of bank closeness. We link the closeness of asset distributions to the likelihood that banks will experience a similar level and type of distress in a given adverse scenario. We analyze the dynamics of tier 1 capital ratio after stressing the bank network and find that while the system is able to withstand shocks for a wide range of parameters, we identify a critical threshold for both asset risk and bank response to a shock beyond which the system transitions from stable to unstable.

Systemic risk-efficient asset allocations: Minimization of systemic risk as a network optimization problem

Systemic risk is a multi-layer network phenomenon. Layers represent various types of direct financial exposure of various types, including interbank liabilities and derivative- or foreign exchange exposures. An important layer of systemic risk emerges through common asset holdings of financial institutions. Strongly overlapping portfolios lead to similar exposures that are caused by price movements of the underlying financial assets. Based on the knowledge of individual portfolio holdings of financial agents, we quantify the systemic risk of overlapping portfolios. We then present an optimization procedure whereby we minimize the systemic risk in a given financial market by optimally rearranging overlapping portfolio networks. The optimization is performed under the constraints that the expected returns and risk of the individual portfolios are unchanged. We explicitly demonstrate the power of the method on the overlapping portfolio network of sovereign exposure between major European banks, using data from the European Banking Authority stress test of 2016. Systemic risk can be reduced by more than a factor of two, without any detrimental effects for the individual banks. These results are confirmed by a simple simulation of fire sales in the government bond market. In particular, we show that the contagion probability is dramatically reduced in the optimized network. We comment on the efficiency of the network optimization approach in comparison to equity-injection-based ways to reduce systemic risk. To obtain the same risk levels that are obtained in the network optimization, it would be necessary to increase the actual available capital by two thirds. This shows the immense potential of network-based systemic risk management.

What drives the greater or lesser usage of forbearance measures by banks?

After the subprime crisis, with the worsening of asset quality all around Europe, a lack of harmonization emerged concerning credit classification, monitoring, provisioning and writing-off in the banking industry. A wave of analysis and new regulations by the Supervising Authorities aimed at highlighting best practices and creating a common standard, in order to enhance transparency and accounting data comparability across the European Union. A point of particular attention concerned the usage of forbearance measures and the classification and provisioning of forborne positions. This paper deep-dives into this issue leveraging on the public dataset disclosed by the European Banking Authority, following the 2018 EU-wide Transparency Exercise. The purpose of this paper is twofold. On one side, we want to gauge the extension of the forbearance measures’ usage among a sample of major European banks and the drivers of this usage. On the other side, we want to analyze which main factors impact on the loan loss provisioning of forborne positions.