The banking union council has endorsed a number of new measures to help reduce risk in the EU banking sector.
These agreed proposals aim to implement reforms agreed at international level after the 2007/08 financial crisis to strengthen the banking sector and financial stability challenges. Initially presented in November 2016, they include elements agreed by the Basel Committee on Banking Supervision and by the Financial Stability Board (FSB).
Agreed measures are focused on three key objectives including the enhancement of the framework for bank resolution, particularly the necessary level and quality of the subordination of liabilities (MREL), in order to ensure effective and orderly bail-in processes.
It also will introduce the possibility for resolution authorities to suspend a bank’s payments and contractual obligations, to help stabilise the bank’s situation.
The final main area is a strengthening of bank capital requirements to reduce incentives for exercise risk taking. To do this is will include a binding leverage ratio, a binding net stable funding ratio and setting risk sensitive rules for securities and derivatives trading.
Alongside this, the new proposals will improve a bank’s lending capacity and provide a bigger role for banks in capital markets.
Part of this bigger role includes lowering administration burdens, principally around reporting and disclosure requirements, enhancing abilities to lend to SMEs and infrastructure projects, and lowering costs on issuing/holding some instruments like covered bonds and high-quality securitisations.
The final part of the new banking package proposals is a framework for cooperation and information sharing between various authorities involved with cross-border banking groups. It will give home and host supervisor powers to facilitate cross-border flows of capital and liquidity, and ensure protection for depositors, creditors and financial stability.
Among this framework are amendments to improve cooperation of authorities on matters around anti-money laundering.
Hartwig Löger, minister for finance of Austria, which currently holds the Council presidency, said, “Today we have taken a very important step towards completing the Banking Union. We are delivering measures to make European banks stronger, more stable, more resilient. The measures will create the conditions to take ambitious decisions on reforming the euro-area.”
Work will continue to smooth remaining technical and political issues, and finish negotiations by the end of the year.
A recent report from Reuters stated that finance ministers of the European Union adopted a plan to increase defences against money laundering at banks; however, it could move slowly.