PURPOSE: to reduce financial institutions
leverage, and strengthen their stable funding and trading book
capital requirements.
PROPOSED ACT: Regulation of the European Parliament
and of the Council.
ROLE OF THE EUROPEAN PARLIAMENT: the European
Parliament decides in accordance with the ordinary legislative
procedure and on an equal footing with Council.
BACKGROUND: in the aftermath of the financial crisis
that unfolded in 2007-2008, the Union implemented a substantial
reform of the financial services regulatory framework to enhance
the resilience of its financial institutions. That reform was
largely based on internationally agreed standards. Among its many
measures, the reform package included the adoption of Regulation
(EU) No 575/2013 (the Capital Requirements Regulation or CRR)
and Directive
2013/36/EU (the Capital Requirements Directive) of the European
Parliament and of the Council, which strengthened the prudential
requirements for credit institutions and investment
firms.
While the reform has rendered the financial system
more stable and resilient against many types of possible future
shocks and crises, it did not address all identified
problems.
In its Communication
of 24 November 2015, the Commission recognised the need for
further risk reduction and committed bringing forward a legislative
proposal that would build on internationally agreed
standards.
IMPACT ASSESSMENT: the Regulatory Scrutiny Board
issued a positive opinion in September 2016 on a resubmitted impact
assessment, following a negative opinion. The modelling has shown
that public resources required to support the banking system in
case of a financial crisis of the size similar to 2007 2008
would decrease by 32% a decline from EUR 51 billion to EUR
34 billion.
CONTENT: the proposal makes amendments to the
Capital Requirements Regulation in order to complete the reform
agenda by tackling remaining weaknesses and implementing some
outstanding elements of the reform that are essential to ensure the
institutions' resilience but have only recently been finalised by
the Basel Committee on Banking Supervision and the Financial
Stability Board (FSB).
These amendments relate to:
- a binding leverage ratio which will prevent
institutions from excessively increasing leverage, e.g. to
compensate for low profitability;
- a binding net stable funding ratio (NSFR) which
will build on institutions improved
- funding profiles and establishing a harmonised
standard for how much stable, long-term sources of funding an
institution needs to weather periods of market and funding
stress;
- more risk sensitive own funds (i.e. capital)
requirements for institutions that trade to an important extent
in securities and derivatives which will prevent too much
divergence in those requirements that is not based on the
institutions' risk profiles;
- new standards on the total loss-absorbing capacity
(TLAC) of global systemically important institutions (G-SIIs)
which will require those institutions to have more loss-absorbing
and recapitalisation capacity, tackle interconnections in the
global financial markets and further strengthen the EUs
ability to resolve failing G-SIIs while minimising risks for
taxpayers.
The proposed amendment to Regulation (EU) No 575/2013
(the Capital Requirements Regulation) is part of a legislative
package that includes also amendments to Directive
2013/36/EU (the Capital Requirements Directive) and to Directive
2014/59/EU (the Bank Recovery and Resolution Directive)
and to Regulation (EU) No 806/2014
(the Single
Resolution Mechanism Regulation).