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The European Commission has launched a public consultation on further possible changes to the Capital Requirements Directive (CRD) aimed at strengthening the resilience of the banking sector and the financial system as a whole. The proposed changes, known as 'CRD IV', following two earlier Commission proposals amending the CRD, relate to seven specific policy areas, most of which reflect commitments made by G20 leaders at summits in London and Pittsburgh during 2009. These commitments included building high-quality capital, strengthening risk coverage, mitigating pro-cyclicality and discouraging leverage, as well as strengthening liquidity risk requirements and forward-looking provisioning for credit losses. All interested stakeholders are invited to reply to the consultation by 16 April 2010, indicating what impact the potential changes would have on their activities. The results will feed into a legislative proposal scheduled for the second half of 2010.
Internal Market and Services Commissioner Michel Barnier said: "It is essential that we learn all the lessons from the crisis. In that context, I want to ensure an effective follow-up of international decisions. It is vital that we further strengthen the solidity of financial institutions and put in place new rules in order to be better prepared for the crises of tomorrow. But before making a proposal on 'CRD IV', I want to ensure that we have consulted widely and assessed the impact of the potential changes. I encourage all interested parties to reply and make their views known."
About the consultation
The purpose of the CRD (2006/48/EC and 2006/49/EC) is to ensure the financial soundness of banks and investment firms. Together they stipulate how much of their own financial resources banks and investment firms must have in order to cover their risks and protect depositors.
The Commission is asking all interested stakeholders for their views on further possible changes to the CRD. These possible changes ('CRD IV') will supplement the two existing sets of revisions adopted in October 2008 ('CRD II', IP/08/1433 ) and July 2009 ('CRD III', IP/09/1120 ).
The seven areas of potential action are as follows:
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Liquidity standards: Introducing liquidity standards that include a liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio.
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Definition of capital: Raising the quality, consistency and transparency of the capital base.
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Leverage ratio: Introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework based on appropriate review and calibration.
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Counterparty credit risk: S trengthening the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities.
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Countercyclical measures: A countercyclical capital framework will contribute to a more stable banking system, which will help dampen, instead of amplify, economic and financial shocks.
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Systemically important financial institutions: The Commission is consulting on appropriate measures to deal with the risk posed by such institutions.
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Single rule book in banking: The Commission is consulting on areas where more stringent requirements might be necessary. In addition, the Commission is consulting on the appropriate prudential treatment of real estate lending. This is part of the Commission's commitment to create a single rule book in Europe.
In order to achieve the dual objective of improving the resilience of the global financial system and ensuring a level playing field, it will be essential that a more robust and consistent set of prudential capital requirements is applied across the world. Consequently, the possible changes set out in the consultation document are closely aligned with the forthcoming amendments to the Basel II framework and the introduction of a global liquidity standard that are currently being drawn up by the Basel Committee on Banking Supervision (BCBS, http://www.bis.org ). In this context, as part of the countercyclical measures, the Commission puts greater emphasis on dynamic 'through-the-cycle' provisioning.
Next steps
In the second half of 2010 the Commission intends to adopt and publish a legislative proposal dealing with some or all of the areas discussed in this and previous consultations. Any such proposal will be developed in the light of both responses to the consultations and an impact assessment examining the anticipated effects of options for achieving the outlined policy objectives. In this respect, the Commission has also invited the Committee of the European Banking Supervisors (CEBS) to carry out a European Quantitative Impact Study to aid the assessment of the aggregate effect of the proposed revisions.
The consultation is available at:
http://ec.europa.eu/internal_market/bank/regcapital/index_en.htm
See also MEMO/10/51
