The finance ministers of the European Union member states adopted a comprehensive legislative package to reduce the risks in the banking sector and increase the resilience of banks against potential economic shocks by written procedure, said the EU Council on Tuesday.
On the one hand, the package modifies the capital requirements legislation, which strengthens banks’ capital and liquidity positions and, on the other hand, reinforces the legal framework for the recovery and resolution of banks in difficulty.
The aim of the proposals is to implement reforms adopted at international level following the financial crisis of 2007-2008, aimed at strengthening the banking sector and addressing risks to financial stability.
The package includes, among other things, a leverage ratio requirement for all institutions, as well as a capital buffer requirement for globally systemically important institutions. It has introduced a new reporting framework for market risk, which will, among other things, mitigate reporting and disclosure requirements, and simplify market risk and liquidity rules for smaller and simpler banks. It sets a new requirement for institutions in non-EU countries that have significant activities in the EU, and must therefore have an intermediate EU parent company. It requires the introduction of a total loss-absorbing capability for globally systemically important institutions.
In addition, the banking package also includes a number of targeted measures specifically designed to take account of EU circumstances. These include incentives to promote investment in public infrastructures and small and medium-sized enterprises (SMEs) and a credit risk framework to facilitate the disposal of non-performing loans.