8 November 2022
The EU is about to boost the resilience of banks operating in the Union and strengthen their supervision and risk management by finalising the implementation of the globally agreed Basel III regulatory reforms. Today, the Council reached its position (general approach) on the proposals amending the capital requirements directive and the capital requirements regulation.
We are boosting the strength and resilience of banks operating in the Union. As we are finalising the implementation of the international Basel III reforms, it is important that we take into account the specificities of the EU banking sector and the specific situation in our member states. I am confident that the updated texts which we agreed today aim to achieve these objectives.
Zbyněk Stanjura, Minister of Finance of Czechia
The Slovenian, French and Czech presidencies, as well as the member states’ experts have devoted a lot of time and effort to address the many political and technical issues of this package. Thanks to the constructive approach of all member states, after 12 months of intense negotiations, the right balance has been found for the Council to reach a general approach.
When it comes to limiting banks’ variability of capital levels computed by using internal models via the so-called “output floor” the Council specifies that the limit applies both at banking group level and at the level of each individual bank. Member states will nevertheless have the discretion to apply the floor at the highest level of consolidation for entities in their country if they so wish.
In its position, the Council added technical improvements to the areas of credit risk, market risk and operational risk. It also added enhanced proportionality rules for small banks, in particular concerning disclosure requirements for small and non-complex institutions.
The Council also revised the Commission proposals as regards the “fit and proper” framework for assessing the suitability of members of the institutions’ management bodies and key function holders, further considering national specificities and practices. Similarly, a more proportionate and targeted framework for cooling-off periods has been imposed for staff and members of governance bodies of competent authorities, before they can take up positions in supervised institutions.
Last but not least, the proposal aims to harmonise minimum requirements applicable to branches of third-country banks and the supervision of their activities in the EU as well as to harmonise supervisory tools and powers to make the framework more suitable for member states’ specific market conditions.
The EU plans to finalise the implementation of Basel III international agreements into EU law. The Basel III agreements were reached by the EU and its G20 partners in the Basel Committee on Banking Supervision to make banks more resilient to possible economic shocks. Basel III comprises a number of measures to enhance prudential regulatory standards, supervision and risk management of banks as a response to the global financial crisis of 2007/2008.
The Commission’s proposal of the capital requirements directive aimed at strengthening the regulatory and supervisory landscape for banks operating in the EU by closing loopholes for third country branches, by enhancing and harmonising supervisory tools and powers in important areas and by ensuring that supervisors are sufficiently independent from economical and political influence and by incorporating environmental, social and governance related risks.
The Commission’s proposal of the capital requirements regulation aimed to reinforce and facilitate the allocation of capital and liquidity within banking groups in Europe without imposing a significant increase in their capital requirements. The framework for credit risk and operational risk will be further improved and supported by a so called “output floor” which aims at reducing unjustified variances in banks’ risk metrics.
The European Commission presented its proposals on a review of the capital requirements directive and the capital requirements regulation on 27 October 2021. Now that the Council has set its position on the proposals, it is ready to start negotiations with the European Parliament in order to agree on a final version of the texts.
- General approach on directive 2013/36/EU as regards supervisory powers, sanctions, third-country branches, and environmental, social and governance risks, and amending directive 2014/59/EU
- General approach on regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor
- Commission proposal amending directive 2013/36/EU
- Commission proposal amending regulation (EU) No 575/2013
- Banking Union (background information)