Brussels, 19 May 2011
Internal Market: Commission requests implementation of latest bank capital requirements rules
The European Commission has requested Greece, Italy, Poland, Portugal, Slovenia and Spain to notify measures within two months to implement important rules concerning the capital adequacy and the remuneration policies of financial institutions, as laid down in the Third Capital Requirements Directive or CRD III (2010/76/EU). The deadline for implementing the rules in question was 1 January 2011. The Commission has also requested Belgium, Luxembourg, Slovakia and Sweden to implement those parts of the Directive that they have so far failed to. The aim of the Directive is to ensure the financial soundness of banks and investment firms and to address excessive and imprudent risk-taking in the banking sector promoted by improperly designed remuneration practices which led to the failure of individual institutions and problems to the society as a whole. Timely and correct implementation of the Directive is necessary to address these concerns. The Commission's requests to the Member States concerned take the form of "reasoned opinions". If the national authorities do not notify the necessary implementing measures within two months, the Commission may refer the Member States concerned to the Court of Justice.
What is the aim of the EU rules in question?
The Directive in question amends the Capital Requirements Directives (2006/48/EC and 2006/49/EC). The aim of these Directives 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 their depositors. This legal framework needs to be regularly updated and refined to respond to the needs of the financial system as a whole.
The main changes introduced by Directive 2010/76/EU are as follows:
Remuneration policies and practices within banks:
The Directive tackles perverse pay incentives by requiring banks and investment firms to have sound remuneration policies that do not encourage or reward excessive risk-taking. Banking supervisors have the power to sanction banks with remuneration policies that do not comply with the new requirements. The Directive does not however introduce salary or bonus caps.
Capital requirements for re-securitisations:
Re-securitisations are complex financial products that have played a role in the development of the recent financial crisis. In certain circumstances, banks that hold them can be exposed to considerable losses. The Directive imposes higher capital requirements for re-securitisations, to make sure that banks take proper account of the risks of investing in such complex financial products.
Disclosure of securitisation exposures:
Proper disclosure of the level of risks to which banks are exposed is necessary for market confidence. The new rules tighten up disclosure requirements to increase the market confidence that is necessary to encourage banks to start lending to each other again.
Capital requirements for the trading book:
The trading book consists of all the financial instruments that a bank holds with the intention of re-selling them in the short term, or in order to hedge other instruments in the trading book. The Directive changes the way that banks assess the risks connected with their trading books to ensure that they fully reflect the potential losses from adverse market movements in the kind of stressed conditions that have been experienced recently.
Not all of these rules need to be implemented by 1 January 2011. In fact, Directive 2010/76/EU is to be implemented in two phases. The first, which affects the remuneration provisions as well as a number of other ones dealing with the extension of some pre-existing minimum capital requirements, had to be implemented by 1st January 2011. The remaining provisions have to be implemented by 31 December 2011.
How are the Member States not respecting these rules?
While the majority of Member States have fully implemented the Directive, 10 Member States – Belgium, Greece, Italy, Luxembourg, Poland, Portugal, Slovenia, Slovakia, Spain and Sweden – still have to implement some or all of its provisions. In Greece, Italy, Poland, Portugal, Slovenia and Spain, all of the Directive's provisions still have to be implemented. In 4 Member States, additional or secondary legislation is still required in order to implement a number of provisions, mainly related to the pre-existing minimum capital requirements (Belgium, Luxembourg, Sweden and Slovakia) and the remuneration provisions (Slovakia).
How are EU citizens and/or businesses suffering as a result?
The Directive aims at ensuring the financial soundness of banks and investment firms and at reducing excessive and imprudent risk-taking practices which may be supported by improperly designed remuneration practices. The current financial crisis proves how important addressing these two aspects is for citizens, businesses and society as a whole. If common rules are not upheld at the same level across the EU, this would leave room for current loopholes to be exploited.
Latest information on infringement proceedings concerning all Member States:
For more information on infringement procedures, see MEMO/11/312