EU watchdog sets out software capital relief for banks

By Huw Jones

LONDON (Reuters) - The safety buffers of banks in the European Union would swell by billions of euros under proposed rules that allow lenders to include the value of software investments like cybersecurity in capital calculations.

Currently a bank must deduct the value of software from its capital buffer upfront, adding 36 basis points to its core ratio or mandatory measure of stability.

The European Banking Authority (EBA) said banks will be allowed to "amortise" or taper the value of software for capital purposes over three years.

That would boost capital by about 20.2 billion euros in 2020 across a sample of 64 banks, and by 20 billion euros in 2021, it said.

"The proposed approach is designed to be simple to implement and applicable to all institutions in a standardised manner, as is the case today with the deduction treatment," the EBA said in a statement on Wednesday.

EU policymakers had already agreed to soften the rule to help banks keep lending to pandemic-hit businesses, and the European Commission is expected to rubberstamp the EBA's proposals for introduction this year.

It marks a big win for banks who have long argued that current rules put them off updating cybersecurity systems and innovating in digital services for customers.

"The existing approach also distorts the global playing field, particularly when compared to the U.S., where banks can treat software investments as tangible assets that do not have to be deducted from a bank's capital ratio," the European Banking Federation said in a statement.

The EBA told EU lawmakers last year to avoid hasty changes, saying software was likely to be worthless when a bank goes bust as it could not be sold separately.

UK regulators have spoken against including the value of software investments in capital ratios, noting numerous high profile systems outtages at banks.

(Reporting by Huw Jones; Editing by Kirsten Donovan)