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December 04, 2018

European Council endorsed the agreement achieved between the presidency and the Parliament on the key measures of a comprehensive legislative package aimed at reducing risks in the banking sector in EU. This is a significant step toward strengthening the Banking Union. The banking 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).

EC presented the banking package in November 2016 to implement the reforms agreed at the international level, following the 2007-08 financial crisis. The package includes prudential standards adopted by BCBS and by FSB. The agreed measures deliver on three of the key objectives set out by the European Council roadmap on completing the Banking Union agreed in June 2016:

  • Enhancing the framework for bank resolution, particularly the necessary level and quality of the subordination of liabilities (MREL) to ensure an effective and orderly bail-in process.
  • Introducing the possibility for resolution authorities to suspend a bank's payments and/or contractual obligations when it is under resolution, to help stabilize the bank's situation.
  • Strengthening bank capital requirements to reduce incentives for excessive risk taking, by including a binding leverage ratio, a binding net stable funding ratio, and setting risk-sensitive rules for trading in securities and derivatives.

In addition, the banking package contains measures to improve lending capacity of banks and to facilitate a greater role for banks in the capital markets. This involves reducing the administrative burden for smaller and less complex banks, linked in particular to reporting and disclosure requirements; enhancing the capacity of banks to lend to small and medium-size enterprises; and reducing the costs of issuing/holding certain instruments, such as high quality securitization instruments or covered bonds. The banking package also contains a framework for the cooperation and information-sharing among the various authorities involved in the supervision and resolution of cross-border banking groups.

Work on the remaining outstanding issues will continue at the technical and political levels, in view of finalizing negotiations on the banking package by the end of the year. European Parliament and Council will then be called on to adopt the proposed regulation at first reading.

 

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Keywords: Europe, EU, Banking, Banking Union, CRR 2, CRD 5, BRRD 2, SRMR 2, Proportionality, European Council

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