A comprehensive suite of legislative updates, have been approved and shall be adopted by the European Council with the aim of reducing risks in the banking sector to further reinforce the ability of credit institutions (banks) to withstand possible shocks.
The legislative updates contain amendments to the Capital Requirement Regulation (CRR) and the Capital Requirements Directive (CRD). The objective of such amendments is to reinforce the capital and liquidity positions of banks, whilst further strengthening the framework for the Recovery and Resolution of Banks.
Eugen Teodorovici, the Romanian Minister of Finance, which currently holds the Council Presidency was quoted saying that:
“Today we have adopted a central piece of Europe’s financial reform agenda. It is a stepping stone in the deepening of the Economic and Monetary Union. It also brings the EU in line with its international commitments. Thanks to the introduction of key measures such as the binding leverage ratio for all banks and the introduction of a “total loss-absorbing capacity” for the biggest institutions, banks will be better capitalised and better equipped to withstand market turbulences.”
The legislative proposals implement reforms agreed internationally following the financial crisis of 2008. Such proposals also include elements agreed by the Basel Committee and by the Financial Stability Board.
The legislative updates include a number of key measures such as a new reporting framework in terms of market risk and disclosure requirements for smaller banking institutions. This shall allow a more proportionate regulatory framework for small non-complex credit institutions.
The suite of legislative updates also includes a number of specific measures, such as incentives for investments in public infrastructures and Small & Medium-sized Enterprises. A credit risk framework facilitating the disposal of non-performing loans will also be made available.
Such legislative updates will be published in the Official Journal during the month of June and shall come into force soon after. It is envisaged that most of the new regulations shall apply as from June 2021.