Navigation path

Left navigation

Additional tools

Following today's vote in the European Parliament, Commissioner Michel Barnier welcomes the agreement by Council and Parliament on new capital requirements for banks

European Commission - MEMO/10/304   07/07/2010

Other available languages: none

MEMO/10/304

Brussels, 7 July 2010

Following today's vote in the European Parliament, Commissioner Michel Barnier welcomes the agreement by Council and Parliament on new capital requirements for banks

"The amendments to the Capital Requirements Directive voted today by the European Parliament target the investments and practices that lie at the root of the recent crisis.

The requirements on pay and bonuses send a strong political message: there will be no return to business as usual. The EU is leading the way in curbing unsound remuneration practices in banks. Banks will need to change radically their practices and the mentality that have led in many cases to excessive risk-taking and contributed to the financial crisis.

The tougher capital requirements for banks' trading books and their investments in securitisations - the kind of highly complex products that have caused huge losses for banks - will ensure that banks hold significantly more capital to cover their risks. This will make the sector as whole better able to resist stress."

En français:

"Les amendements à la directive sur les exigences de fonds propres que le Parlement européen a votés aujourd'hui, visent des comportements et des activités financières qui sont au nombre des causes de la crise.

Les nouvelles exigences en termes de rémunération et de bonus envoient, tout d'abord, un message politique fort : on ne renouera pas avec les pratiques d'avant la crise. L'UE fait le choix d'être pionnière dans l'assainissement des modes de rémunération dans les banques. Elle met en œuvre pleinement et de façon très précise les recommandations internationales. Nous en faisons des règles pour notre secteur bancaire.

Ces règles ont pour objet de changer les mentalités et les pratiques en vigueur avant la crise et qui dans bien des cas, celles-ci ont conduit à des prises de risque excessives.

En matière de fonds propres, là aussi nous tirons les leçons de la crise. Lorsqu'elles s'engagent dans des activités comportant plus de risques, les banques doivent disposer de fonds propres plus importants. La directive prévoit ainsi de plus grandes exigences de fonds propres pour les carnets d'ordres des banques et leurs investissements dans la titrisation - le type de produits qui est à l'origine de perte massives pour les banques. Cela augmentera la capacité du secteur tout entier à résister à d'éventuelles tensions."

Background

Remuneration

With regard to remuneration, the Capital Requirements Directive (CRD) primarily aims at giving effect at EU level to the Financial Stability Board (FSB) principles and standards on compensation agreed by G20 leaders. The Directive will require credit institutions and investment firms to have remuneration policies that are consistent with effective risk management.

The Directive pursues three objectives:

  • To impose a binding obligation on credit institutions and investment firms to have remuneration policies and practices that are consistent with and promote sound and effective risk management, accompanied by high level principles on sound remuneration;

  • To bring remuneration policies within the scope of the supervisory review under the CRD, so that supervisors would be able to require the firm to take measures to rectify any problems that they might identify;

  • To ensure that supervisors may also impose financial or non-financial penalties (including fines) against firms that fail to comply with the obligation.

The new rules on remuneration can apply as early as 1 January 2011 with principles on remuneration applying to all variable remuneration payable on or after this date, including when it was awarded in 2010.

Capital Requirements for trading book and securitisations

The Capital Requirements Directive will strengthen banks' capital position and increase market confidence through reform of the capital rules for the trading book and for securitisations:

  • Capital requirements for the trading book: The trading book consists of 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 new rules reform the way that banks assess the risks connected with their trading books to ensure that the assessment takes full account of the potential losses in the kind of stressed conditions experienced during the recent crisis. These revised rules will substantially increase levels of capital held against the trading book.

  • Capital requirements for complex securitisations: Complex securitisations played a role in the development of the financial crisis, when banks incurred unexpectedly high losses in such instruments. The new rules impose higher capital requirements for re-securitisations, to reflect properly the very considerable losses that banks holding complex securitisations can be exposed to in certain circumstances.

  • Disclosure of securitisation exposures: The new rules will reinforce disclosure requirements to ensure adequate disclosure of the risks to which banks are exposed through their securitisation positions. Proper disclosure of the level of risks to which banks are exposed is necessary for market confidence.

The new rules on trading book and securitisations can apply as early as 31 December 2011.

More information: MEMO/09/335

Commissioner Barnier's web site:

http://ec.europa.eu/commission_2010-2014/barnier/index_en.htm


Side Bar

My account

Manage your searches and email notifications


Help us improve our website