The EU is putting in place a new framework which will strengthen the banking union and reduce risks in the financial system.
The Council today adopted a comprehensive legislative package which will reduce risks in the banking sector and further reinforce banks’ ability to withstand potential shocks.
The package contains amendments to the capital requirement legislation (regulation 575/2013 and directive 2013/36/EU) which reinforce the capital and liquidity positions of banks, and strengthens the framework for the recovery and resolution of banks in difficulty (directive 2014/59/EU and regulation 806/2014).
Today we have adopted a central piece of Europe’s financial reform agenda. It is a stepping stone in the deepening of the Economic and Monetary Union. It also brings the EU in line with its international commitments. Thanks to the introduction of key measures such as the binding leverage ratio for all banks and the introduction of a “total loss-absorbing capacity” for the biggest institutions, banks will be better capitalised and better equipped to withstand market turbulences.
Eugen Teodorovici, Minister of finance of Romania, which currently holds the Council presidency
The proposals implement reforms agreed at international level following the 2007-2008 financial crisis to strengthen the banking sector and address remaining challenges to financial stability. Presented in November 2016, they include elements agreed by the Basel Committee on Banking Supervision and by the Financial Stability Board (FSB).
The package includes in particular the following key measures:
- a leverage ratio requirement for all institutions as well as a leverage ratio buffer for all global systemically important institutions;
- a net stable funding requirement;
- a new market risk framework for reporting purposes, including measures reducing reporting and disclosure requirements and simplifying market risk and liquidity rules for small non-complex banks in order to ensure a proportionate framework for all banks within the EU;
- a requirement for third-country institutions with significant activities in the EU to have an EU intermediate parent undertaking;
- a new total loss absorbing capacity (TLAC) requirement for global systemically important institutions;
- enhanced Minimum Requirement for own funds and Eligible Liabilities (MREL) subordination rules for global systemically important institutions (G-SIIs) and other large banks;
- a new moratorium power for the resolution authority.
The banking package also includes a number of targeted measures to cater for EU specificities, such as incentives for investments in public infrastructures and SMEs or a credit risk framework facilitating the disposal of non-performing loans.
Following the signature of the adopted legislation in the week of 20 May, the banking package will be published in the Official Journal in the course of June and will enter into force 20 days later. Most of the new rules will start applying in mid-2021.