Amendments to banking capital requirements legislation

Briefing 21-09-2023

In the aftermath of the 2008 financial crisis, which showed the need for more sophisticated and demanding capital requirements for banks, new regulations were agreed at international level – known as the Basel III Agreements. In the EU, they were implemented essentially by amending the Capital Requirements Directive (CRD) and adopting the Capital Requirements Regulation (CRR). On 27 October 2021, the Commission tabled two interconnected proposals to amend the CRR and the CRD, respectively. The objective is two-fold: (i) implementing the final arrangements of the Basel Agreement; and (ii) enhancing the harmonisation of banking supervision in the EU. The main amendments concern the introduction of an 'output floor', i.e. a lower bound for minimum capital requirements calculated using banks' own methods, consideration of environmental, social and governance (ESG) components in risk assessment, and harmonisation of the selection of board members and directors of credit institutions. The Council issued its common approach in November 2022. The decision by Parliament's ECON Committee to enter negotiations was confirmed in plenary on 15 February 2023. A provisional agreement was reached on 29 June 2023. Second edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.