European Council adopted a comprehensive legislative package that will reduce risks in the banking sector and further reinforce banks' ability to withstand potential shocks. The package comprises amendments to two regulations and two directives—namely amendments to the Capital Requirements Regulation and Directive (CRR/CRD), the Bank Recovery and Resolution Directive (BRRD), and the Single Resolution Mechanism Regulation (SRMR). Following the signature of the adopted legislation in the week of May 20, the banking package will be published in the Official Journal of the European Union in the course of June and will enter into force 20 days later. Most of the new rules will start applying in mid-2021.
The proposals implement reforms agreed at the international level following the 2007-2008 financial crisis to strengthen the banking sector and address remaining challenges to financial stability. Presented in November 2016, the package include elements agreed by BCBS and FSB. The package includes the following key measures:
- Leverage ratio requirement for all institutions as well as a leverage ratio buffer for all global systemically important institutions
- A net stable funding requirement
- 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
- Requirement for third-country institutions with significant activities in EU to have an EU intermediate parent undertaking
- 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 and other large banks
- New moratorium power for the resolution authority
- A number of targeted measures to cater for EU specificities, such as incentives for investments in public infrastructures and small and medium-size enterprises (SMEs) or a credit risk framework facilitating the disposal of non-performing loans
Effective Date: OJ+20 Days
Keywords: Europe, EU, Banking, Banking Union, CRR 2, CRD 5, BRRD 2, SRMR 2, Basel III, European Council
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.