EU-flash: Banking Reform Package

29/11/2016

On 23 November, the European Commission presented a comprehensive package of reforms to further strengthen the resilience of EU banks. This proposal builds on existing EU banking rules and aims to enhance the regulatory framework to guarantee financial stability, while ensuring that banks can continue to support the real economy. Alongside the EU Bank Reform package, the Commission also published their analysis of the responses to the Call for Evidence: a public consultation on Europe’s regulatory framework for financial services.

Below you can find a brief summary of these topics.

Key elements of the Banking Reform Package

The European Commission has proposed five pieces of legislation to change the Capital Requirements Regulation, the Capital Requirements Directive, the Single Resolution Mechanism Regulation, and the Bank Recovery and Resolution Directive on which there are two separate proposals.

Measures to increase the resilience of EU institutions and enhancing financial stability

The proposals incorporate the remaining elements of the regulatory framework agreed recently within the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). They include:

  • More risk-sensitive capital requirements, in particular in the area of market risk, counterparty credit risk, and for exposures to central counterparties (CCPs);
  • Implementing methodologies that are able to reflect more accurately the actual risks to which banks are exposed;
  • A binding Leverage Ratio (LR) to prevent institutions from excessive leverage;
  • A binding Net Stable Funding Ratio (NSFR) to address the excessive reliance on short-term wholesale funding and to reduce long-term funding risk.
  • A requirement for Global Systemically Important Institutions (G-SIIs) to hold minimum levels of capital and other instruments which bear losses in resolution. This requirement, known as 'Total Loss-Absorbing Capacity' or TLAC), will be integrated into the existing MREL (Minimum Requirement for own funds and Eligible Liabilities) system, which is applicable to all banks, and will strengthen the EU's ability to resolve failing G-SIIs while protecting financial stability and minimising risks for taxpayers. It proposes a harmonised national insolvency ranking of unsecured debt instruments to facilitate banks' issuance of such loss absorbing debt instruments.

Measures to improve banks' lending capacity to support the EU economy

In particular, specific measures are proposed to:

  • Enhance the capacity of banks to lend to SMEs and to fund infrastructure projects;
  • For non-complex, small banks, reduce the administrative burden linked to some rules in the area of remuneration (namely those on deferral and remuneration using instruments, such as shares), which appear disproportionate for these banks;
  • Make CRD/CRR rules more proportionate and less burdensome for smaller and less complex institutions where some of the current disclosure, reporting and complex trading book-related requirements appear not to be justified by prudential considerations. The Call for Evidence and the analysis carried out by the Commission showed that the present framework can be applied in a more proportionate way, taking into account their specific situation.

Measures to further facilitate the role of banks in achieving deeper and more liquid EU capital markets to support the creation of a Capital Markets Union

Specific adjustments to the proposed measures are envisaged in order to:

  • Avoid disproportionate capital requirements for trading book positions, including those related to market-making activities;
  • Reduce the costs of issuing/holding certain instruments (covered bonds, high quality securitisation instruments, sovereign debt instruments, derivatives for hedging purposes);
  • Avoid potential disincentives for those institutions that act as intermediaries for clients in relation to trades cleared by CCPs.

These legislative proposals will now be submitted to the European Parliament and to the Council for their consideration and adoption.

For more information, click here.

FAQ on CRR / CRD IV and resolution framework (BRRD/SRM) amendments

Call for Evidence analysis

Alongside the EU Bank Reform package, the European Commission also published their analysis of the responses to the Call for Evidence. This is a public consultation on the EU regulatory framework for financial services that was launched on 30 September 2015. All citizens and organisations were welcome to contribute to this consultation. The aim of the consultation was to obtain empirical evidence and concrete feedback on:

  • Rules affecting the ability of the economy to finance itself and growth;
  • Unnecessary regulatory burdens;
  • Interactions, inconsistencies and gaps;
  • Rules giving rise to unintended consequences.

As a follow-up to the Call for Evidence, the Commission will take a number of specific actions, detailed in the Communication. These range from legislative reviews to ongoing policy work, e.g. to refine measures under the CMU Action Plan. Going forward, the Commission will monitor progress in the implementation of the respective policy commitments and will publish its findings and next steps before the end of 2017.

More information.

FAQ on the Call for Evidence.

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