EU plans to adopt Basel III rules, to enhance EU banks’ resilience and financial stability, were backed by the Economic and Monetary Affairs Committee on Tuesday.

Proposals to amend the EU’s prudential requirements (CRD-V/CRR-II) should help boost the EU economy by increasing lending capacity and creating deeper and more liquid capital markets.

 

Proportionality

 

To ensure that banks are treated proportionately, according to their risk profiles and systemic importance, MEPs inserted a definition of a “small and non-complex institution” that should be subject to simplified requirements with regard to recovery and resolution planning and reduced reporting frequency.

 

Leverage ratio

 

MEPs agreed to a binding 3% leverage ratio, MEPs and an additional 50% buffer for global systemically important institutions (GSIIs). They also refined Net Stable Funding Ratio (NSFR), rules for ascertaining whether an institution holds sufficient stable funding to meet its funding needs during a one-year period under both normal and stressed conditions

 

Exempted banks

 

MEPs believe that a fixed list of banks that would be exempted from prudential requirements could be extended only on the basis of clear criteria. Moreover, EU member states would be required to ensure the publication of a list of excluded entities, together with information on deposit protection.

 

Deeper banking union

 

MEPs also took up the idea of waivers, as proposed by the EU Commission. These refer to own funds and liquidity requirements for banking groups operating across borders within the EU, which would help to complete the banking union. However, they decided to make the waivers more prudent, by stipulating that the amount of own funds waived should not exceed 25% of the minimum own funds requirement.

 

Quote

 

Rapporteur Peter Simon (S&D, DE) said: "We have today sent a strong signal for greater financial stability and tailor-made regulatory requirements for small and low-risk banks. The approach that a small low-risk bank must meet the same requirements as a large bank operating internationally is to become a thing of the past. But it is also clear that relief for small and low-risk banks must reduce administrative expenses without reducing regulatory requirements, such as capital and liquidity requirements".

 

"Proportionality in banking regulation also means that large, systemically important banks, which in the past have financed themselves partly on taxpayer costs through their risky business models, are not handled with kid gloves. The position of the European Parliament stipulates that large, systemically important banks must maintain more equity capital than before, due to a stricter debt ratio. This goes further than the EU Commission's proposal. In addition, risky trading transactions are to be recorded more precisely through a new framework."

 

"Finally, more account is to be taken of sustainability in future. Banks should take a close look at risks arising from environmental, social and management issues on the basis of guidelines".

 

Next steps

 

Committee negotiators are ready for three-way talks with the Commission and the Council, once the text has been announced at Parliament’s July plenary session. The Council agreed  its common approach at the end of May.