MEPs adopted changes set to make EU banks more resilient to future economic shocks and implement the international Basel III agreement, taking into account specificities of the EU economy.
Adopting changes to the Capital Requirements Regulation (adopted with 41 votes to 1 and 14 abstentions) and the Capital Requirements Directive (adopted with 49 votes to 2 and 7 abstentions) MEPs agreed on the need to faithfully implement the Basel III reform, while avoiding a significant increase in overall capital requirements for the EU banking system. MEPs also aimed at achieving a harmonised internal market for banking with reduced compliance and reporting costs, especially for small and non-complex banks.
Capital requirements and transitional periods
MEPs agreed that the “output floor” setting lower limit on the capital requirements calculated by banks using their internal models should be consolidated at the EU level in order to have comparable risk weights and avoid variations in capital levles. Moreover a competent authority should be able to address inappropriate distribution of capital among banking groups and propose a capital redistribution.
Transitional arrangemts for low risk exposures secured by mortgages on residential property have been agreed on. An extention of the transitional periods is possible but no longer than four years.
Environmental risks and management assesment
Among environmental, social and governance risks, taking into account the EU carbon neutraility by 2050 objective and relevant agreed EU sustainability goals, MEPs focused on environmental risks. They agreed on strengthed reporting and disclosure requirements for ESG risk. European Banking Authority (EBA) is mandated to assess whether a dedicated prudential treatment of exopsures would be warrented. Based on that report the Commission might adopt a legislative proposal in this regard.
MEPs also want banks to disclose their exposure to crypto-assets and crypto assets services as well as a specific description of their risk management policies related to crypto-assets. The Commission was invited to submit a legislative proposal by June 2023 on a dedicated prudential treatment for exposures to crypto-assets.
In Capital Requirements Directive, MEPs addressed suitability of members of management bodies, which should be sufficiently diverse and gender-balanced in order to present independent opinions and respond to challenges. They also want to introduce measures to ensure that a key function holder is replaced if that person ceases to comply with suitability criteria.
Finally, in order to preserve a level playing field in the EU, MEPs adopted a third country branches regime supervision. New third country branches must not commence their activities in a Member State until the EBA and the third country have concluded a Memorandum of Understanding (MoU), providing a clear cooperation framework, including exchange of information in on-going supervision, crisis management and resolution.
Jonás FERNÁNDEZ (S&D, ES) the lead MEP on both files sais after the votes: "The texts adopted today in the committee on Economic and Monetary Affairs send a message that, in spite of the inclusion of some EU specificities, the European Parliament is committed with implementing the Basel III international agreements as close as possible into EU legislation.
As rapporteur, I am particularly satisfied that we have limited any potential extension of the transitional periods included by the European Commission in its legislative proposal by including a clear limitation of four years at the most. The introduction of a requirement to include ESG-related valuation consideration in the obsolescence of collateral is also a key point in the agreement reached on the Capital Requirements Regulation.
Moreover, the Capital Requirements Directive makes it compulsory for banks to adopt transitional plans to address ESG risks in the short, medium and long term, with a special focus on the EU objective of achieving climate neutrality by 2050 and disclosure requirements are imposed.
Furthermore, a better regime for Third Country Branches has been put in place, ensuring an appropriate supervision and the level playing field vis-à-vis EU institutions. A fit and proper regime that proposes clear rules for the assessment of management bodies and key function holders of is also worthy of note.
Overall, the European Parliament stands ready to start interinstitutional negotiations to ensure EU citizens can soon benefit from a more resilient banking sector."