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October 25, 2017

The European Parliament, the Council, and the Commission agreed on elements of the review of the Bank Recovery and Resolution Directive (BRRD) and of the Capital Requirements Regulation (CRR) and Directive (CRD) proposed in November 2016. EC welcomed the political agreement to fast-track selected parts of the 2016 EU Banking Reform package. This is an important part of the EC's ongoing work to reduce risk in the banking sector and is in line with the efforts to complete the Banking Union, as set out in the EC communication of October 11, 2017.

The agreement on the BRRD creates a new category of unsecured debt in bank creditors' insolvency ranking. It establishes an EU harmonized approach on the priority ranking of bank bond holders in insolvency and in resolution. The agreement on the CRR/CRD implements the new International Financial Reporting Standard (IFRS) 9. The agreement on a five-year phase-in period for IFRS 9 accounting standards will allow banks to add back to their capital part of the increase in loan-loss provisions. The agreement also introduces a new transitional arrangement for large exposure limits in prudential rules. Banks with large holdings of government bonds not denominated in a domestic currency will have more time to adjust to the rules.

The agreement on the harmonized rules on the priority ranking of bank bond holders in insolvency and in resolution facilitates a more efficient path toward banks' compliance with the total loss-absorbing capacity (TLAC) standard that should apply from 2019 onward, as agreed in the Financial Stability Forum. In addition, these harmonized rules will also facilitate the application of the bail-in tool in resolution. These political agreements will be followed by further technical talks to finalize the text. The Permanent Representatives Committee (COREPER) of the Council of Ministers is expected to endorse the agreement ahead of the European Parliament's plenary vote. The text needs to be in place by the beginning of 2018.

 

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Keywords: Europe, EU, Banking, Accounting, Banking Reform Package, BRRD, IFRS 9, CRR/CRD, TLAC, EC

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