The European Commission today presented a package of reforms "to further strengthen banks' ability to withstand possible shocks". This is what can be read in a statement from the Brussels Executive.
Here are the main new arrivals:
– the requirement for global systemically important institutions to hold minimum capital levels and other loss-absorbing instruments in resolution (rule that would force the American banking giants to increase the capital and liquidity of their European subsidiaries);
– measures to increase the resilience of EU institutions and to strengthen financial stability, in particular higher capital requirements for banks' positions in trading of shares, bonds or derivatives, due to their high volatility;
– the introduction of methodologies capable of more accurately reflecting the real risks to which banks are exposed;
– the obligation to maintain a binding leverage ratio of 3%. in order to reduce excessive borrowing;
– the introduction of a binding net stable funding ratio (NSFR) in order to address the problem of excessive use of short-term wholesale funding and to reduce the risk of long-term funding (the minimum level will be 100%, i.e. a bank will have to "hold sufficient stable funding to satisfy its funding needs over a one-year period under both normal and stressed conditions).
The executive package also contains measures aimed at improving the lending capacity of banks to support the EU economy. In particular, specific measures are proposed for:
– strengthen the banks' capacity to disburse loans to SMEs and finance infrastructure projects;
– for small and non-complex banks, reduce administrative burdens related to certain rules on remuneration (in particular on deferment and payment in instruments such as shares), which in their case are disproportionate;
– make the Crd/Crr regulation more proportionate and less burdensome for smaller and less complex institutions where some of the current disclosure, reporting and complex trading book obligations appear not to be justified by prudential considerations.
