Members' Research Service By / March 1, 2023

Amendments to banking capital requirements legislation [EU Legislation in Progress]

The allocation of prudential capital (also known as ‘own funds’) is an essential component of the asset-liability management of credit institutions to prevent insolvency.

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Written by Issam Hallak (1st edition).

In the aftermath of the 2008 financial crisis, which showed the need for more sophisticated and demanding capital requirements for banks, new regulations were agreed at international level – known as the Basel III Agreements. In the EU, they were implemented essentially by amending the Capital Requirements Directive (CRD) and adopting the Capital Requirements Regulation (CRR).

On 27 October 2021, the Commission tabled two interconnected proposals to amend the CRR and the CRD, respectively. The objective is two-fold: (i) implementing the final arrangements of the Basel Agreement; and (ii) enhancing the harmonisation of banking supervision in the EU.

The main amendments concern the introduction of an ‘output floor’, i.e. a lower bound for minimum capital requirements calculated using banks’ own methods, consideration of environmental, social and governance (ESG) components in risk assessment, and harmonisation of the selection of board members and directors of credit institutions.

The Council issued its common approach in November 2022. The decision by Parliament’s ECON Committee to enter negotiations was confirmed in plenary on 15 February 2023.

Versions

Proposal for amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor; Proposal for amending Directive 2014/59/EU; amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor
Committee responsible:Economic and Monetary Affairs (ECON)COM(2021) 663, 27.10.2021;
COM(2021) 664, 27.10.2021
Rapporteur:Jonás Fernández (S&D, Spain)2021/0341(COD);
2021/0342(COD)
Shadow rapporteurs:Othmar Karas (EPP, Austria), Erik Poulsen (Renew, Denmark) 2021/0341(COD) / Gilles Boyer (Renew, France) 2021/0342(COD), Ville Niinistö (Greens/EFA, Finland), Marco Zanni (ID, Italy), Johan Van Overtveldt (ECR, Belgium), Dimitrios Papadimoulis (The Left, Greece)Ordinary legislative procedure (COD)
(Parliament and Council on equal footing
– formerly ‘co-decision’)
Next steps expected: Trilogue
EU Legislation in progress timeline

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