European Commission - Press release
Internal Market: Commission requests Belgium and Greece to implement bank capital rules
Brussels, 16 June 2011 - The European Commission has requested Greece and Belgium to notify within the next two months the measures they are taking to implement important rules concerning capital adequacy for banks and investment firms as laid down in the Second Capital Requirements Directives (known as CRD II).
The aims of the Directives are to reinforce the stability of the financial system, reduce banks' risk exposure and improve the supervision of banks that operate in more than one EU country. The deadline for implementing these rules was 31 October 2010.
The Commission's request takes the form of a "reasoned opinion". 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 are the rules in question? The Directives in question amend the original Capital Requirements Directives (2006/48/EC and 2006/49/EC). Their aim is to ensure the financial soundness of banks and investment firms by stipulating how much of their own financial resources banks and investment firms must have in order to cover their risks and protect their depositors. In the coming weeks, the European Commission will table new proposals amending existing rules to update the existing framework so that it responds even better to the needs of the financial system.
The main changes introduced by Directives 2009/27/EC, 2009/83/EC and 2009/111/EC (which make up CRD II) are as follows:
Improving the management of large exposures: Banks are restricted in lending beyond a certain limit to any one party. As a result, in the inter-bank market, banks cannot lend or place money with other banks beyond a certain amount, while borrowing banks are effectively restricted in how much and from whom they can borrow. This limits the risks any one bank can take and the chances of a domino effect if one bank faces a serious problem.
Improving supervision of cross-border banking groups: 'colleges of supervisors' must be established to facilitate the supervision of banking groups that operate in multiple countries and spot potential problems earlier. The rights and responsibilities of the national supervisory authorities are also made clearer and there are measures to improve their cooperation.
Improving the quality of banks' capital: The Directives set down clear EU-wide criteria for assessing when 'hybrid' capital, i.e. capital including both equity and debt, is eligible to be counted as part of a bank's overall capital – the amount of which determines how much the bank can lend.
Improving liquidity risk management: for banking groups that operate in multiple EU countries, their liquidity risk management – i.e. how they fund their operations on a day-to-day basis – are to be discussed and coordinated within 'colleges of supervisors'.
Improving risk management for securitised products: rules on securitised debt – the repayment of which depends on the performance of a dedicated pool of loans – are tightened. Firms (known as 'originators') that re-package loans into tradable securities are required to retain some risk exposure to these securities, while firms that invest in the securities are allowed to make their decisions only after conducting comprehensive due diligence. If they fail to do so, they will be subject to heavy capital penalties. These measures will ensure that risks taken are properly taken into account and mitigated.
How are Belgium and Greece not respecting these rules? Belgium still needs to transpose a number of provisions concerning the supervision of banks and investment firms. Greece has not taken national measures to ensure the cooperation and exchange of information between supervisory authorities and it has not enacted the obligation to adhere to standards issued by the new European Banking Authority. Although the Belgian and Greek authorities have indicated their intention to take the necessary measures to implement the remaining provisions of the Directives, they have not yet done so.
How are EU citizens and/or businesses suffering as a result? The Directives aim at ensuring the financial soundness of banks and investment firms and at reducing excessive and imprudent risk-taking 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 EU infringement procedures, see MEMO/11/408
Chantal Hughes (+32 2 296 44 50)
Catherine Bunyan (+32 2 299 65 12)
Carmel Dunne (+32 2 299 88 94)