Last week the European Commission unveiled a banking package that will enable banks to support households and businesses so that any Covid-19 related economic downturn will not cause lasting harm, by allowing a more flexible interpretation of the EU's accounting and prudential requirements.

The package reflects the wide-ranging modifications to banking regulation and supervisory approaches that have been rapidly and responsibly agreed at an international level, which UK Finance fully supports.

The Commission's proposals will allow these modifications to be implemented in Europe by making targeted amendments to the Capital Requirements Regulations (CRR). CRR is the primary legislation that is already in force and which sets the EU's prudential banking rules in relation to capital, liquidity and leverage.

As the CRR applies to UK banks, they too will benefit from these pragmatic and flexible EU proposals.

These amendments will:

• extend the transitional period over which banks can add back to their regulatory capital any increase in IFRS 9 determined expected credit losses by two years
• permit the inclusion of prudentially valued software assets in regulatory capital
• exclude central bank reserves from a bank's leverage ratio calculation
• bring forward the introduction of the revised SME supporting factor and the new infrastructure supporting factor
• delay by one year the introduction of the additional leverage ratio buffer requirement for systemically important institutions
• extend the current preferential export credit agency Non-Performing Loan (NPL) backstop treatment to NPLs guaranteed by the public sector.

However, there are additional changes that UK Finance believes the EU authorities should consider to:

• exclude banks? holdings of sovereign bonds from the calculation of the leverage ratio
• delay the implementation of the Standardised Approach for Counterparty Risk
• modify the use of VaR multipliers for Internal Model Approaches in market risk.

These additional changes would meet the same objective as the targeted amendments already announced by the Commission by mitigating the negative impact of the current uncertain market conditions on banks? capital, which may hamper their ability to lend to support the economy.

As the Commission's targeted proposals are changes to primary legislation, they will require the approval of the Commission's two co-legislators, the European Parliament and the European Council. Because of their importance, UK Finance looks forward to these ?quick fix? amendments being approved by June at the latest,  in order that their effect can be reflected in banks? reporting of their results for the first half of 2020 and  their continuing ability to support customers affected by the Covid-19 pandemic is not impeded by unwarranted increases in regulatory capital requirements. However, the Commission should also go further and consider extending the amendments to include those additional changes UK Finance has identified.