The Council adopted new rules aimed at making banks operating in the EU more resilient to possible economic shocks. The changes aim to increase the resilience of banks, strengthen their supervision and reinforce risk management. In addition they will strengthen supervision and sustainability in the banking sector.
Vincent Van Peteghem, Belgian minister for finance, stated last Thursday: “The Basel III standards significantly strengthen the resilience of the banking sector. The rules adopted today will ensure that European banks can continue to operate in the face of economic shocks. They will also make the banking sector more sustainable and better able to deal with the green and digital transitions. This is an important step towards deepening the Banking Union”.
The new rules update the capital requirements regulation and the capital requirements directive that translate the Basel III standards into EU legislation.
The reforms’ main feature is the introduction of an “output floor” that limits the risk of excessive reductions in banks’ capital requirements and, makes those requirements more comparable. The output floor sets a lower limit on the capital requirements that are determined in accordance with banks’ internal models to 72,5% of the capital requirements that would apply if they used standardised measurements.
Beyond the implementation of Basel III standards, the new rules harmonise minimum requirements applicable to the authorisation of branches of third-country banks and the supervision of their activities in the EU.
They also set a transitional prudential regime for crypto assets and introduce amendments to enhance banks’ management of Environmental, Social and Governance (ESG) risks.
Next steps
This is the last step of the adoption procedure. The amended capital requirements regulation and capital requirements directive will now be published in the EU’s Official Journal and enter into force 20 days later.
Member states will have 18 months to transpose the directive into national legislation. The regulation will apply from 1 January 2025.
Background
The Basel III standards were agreed by the Basel Committee on Banking Supervision (BCBS) to enhance the prudential regulation, supervision and risk management of banks as a response to the global financial crisis of 2007-2008. The capital requirements regulation and the capital requirements directive translate the international Basel standards into EU law.
The European Commission presented proposals to implement the Basel III standards through amendments to the capital requirements regulation and the capital requirements directive on 27 October 2021. The Council and the European Parliament reached a provisional political agreement on the proposals on 27 June 2023.
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More information: Council of the European Union
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