In context

EU Banking Reform Package: New capital and loss-absorption requirements

February 14, 2017
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In context

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On 23 November 2016, the European Commission published proposals for the completion of the banking regulation reform that was initiated after the financial crisis. The proposals, referred to as the “banking reform” or “CRR II” package, consist of an extensive set of amendments to the existing EU banking regulation rules.

 

The Commission’s proposals stem from the new international standards as finalised by the Basel Committee and the Financial Stability Board, and from a comprehensive review of existing EU banking regulation by the European Banking Authority (EBA) and the Commission. In this publication, we highlight the most important amendments to the capital requirements framework and the resolution framework applicable to banks in the EU.

 

The European Parliament and the Council of the EU have begun to deliberate on the proposals. Entry into force is expected in 2019 or later. Although the final form of the rules remains unknown, the capital requirements proposals will have a significant impact on banks, including on their risk modelling, funding structure and reporting systems. In some instances, the proposals may also require the raising of additional own funds or the reduction of exposures. The proposals introduce a larger degree of proportionality into the rules for smaller banks. For their part, the resolution proposals will also have a significant impact on banks, especially on their funding structure. In some cases, they may also require the raising of additional own funds or eligible liabilities. However, banks have already had several years to prepare for these changes.

On 23 November 2016, the European Commission published proposals for the completion of the banking regulation reform that was initiated after the financial crisis. The proposals, referred to as the “banking reform” or “CRR II” package, consist of an extensive set of amendments to the existing EU banking regulation rules.

 

The Commission’s proposals stem from the new international standards as finalised by the Basel Committee and the Financial Stability Board, and from a comprehensive review of existing EU banking regulation by the European Banking Authority (EBA) and the Commission. In this publication, we highlight the most important amendments to the capital requirements framework and the resolution framework applicable to banks in the EU.

 

The European Parliament and the Council of the EU have begun to deliberate on the proposals. Entry into force is expected in 2019 or later. Although the final form of the rules remains unknown, the capital requirements proposals will have a significant impact on banks, including on their risk modelling, funding structure and reporting systems. In some instances, the proposals may also require the raising of additional own funds or the reduction of exposures. The proposals introduce a larger degree of proportionality into the rules for smaller banks. For their part, the resolution proposals will also have a significant impact on banks, especially on their funding structure. In some cases, they may also require the raising of additional own funds or eligible liabilities. However, banks have already had several years to prepare for these changes.

 

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