12 November 2019

European Commission: Keynote speech of Vice-President Valdis Dombrovskis on challenges and impacts of implementing Basel III

In his speech Mr Dombrovskis sums-up the main developments in the banking sector since the financial crisis. Dombrovskis focuses on NPLs, the banking package, the Basel III implementation and the deposit insurance scheme as the third pillar of Banking Union.

Mr Dombrovskis says:

“Reaching agreement on the banking package earlier this year was a major step in the right direction and in creating the right regulatory environment. It puts the previous set of Basel standards into proper effect.

“The next step is to complete the Banking Union – and it is high time to do so. An immediate achievable ambition is to agree on the backstop to the Single Resolution Fund.

“We also need to agree on the common deposit insurance scheme, or EDIS: the third pillar of the Banking Union. This month marks four years since the Commission made its proposal to give the Banking Union stronger and more uniform insurance cover.

“The interconnected nature of modern financial markets means that neither Europe nor any single country can tackle financial risks on its own. In short: global finance needs global rules.

“This is why it is so important that we agreed on Basel III in December 2017 to finalise the post-crisis reforms of banking regulation. It aims to restore confidence in calculating risk-based capital requirements.

“However: for banks to compete fairly in a stable global financial system, the conditions to do so must be equal. That is why it is essential for all major jurisdictions to implement all key elements of the Basel agreement. The EU is committed to carrying through the final Basel III reforms faithfully.

“Commission experts have taken preliminary steps towards this, asking interested parties for first views and the European Banking Authority for technical advice. One major initiative for next year is to present a legislative proposal on the EU's implementation of the final set of Basel III reforms.

“Prudential rules could favour 'green' investments and loans, naturally while keeping prudential considerations in mind. The EBA is already assessing the possibility of introducing a more risk-sensitive capital treatment of green assets, as a ‘green supporting factor'.

“I mention proportionality a lot because it features prominently in how the EU puts international standards into practice. We need to consider proportionality to cater for the diversity of the EU banking sector, as well as differences in bank size, complexity, business model and risk profile when applying the single rulebook. The last review of the Capital Requirements Regulation and Directive further strengthened the rulebook's proportionality principle, especially for smaller banks.

“Have we done enough with the Basel III reforms? Do we need to do more? Are there any new risks or aspects that would call for more regulatory action?

“Our financial system is inherently international. It faces new challenges on a daily basis, not least from Europe's transition to climate neutrality and the process of digitalisation. Both of these are opportunities too, of course. Given what we know is coming – perhaps also for what we don't know – we will need regulatory cooperation well beyond finalising the post-crisis reforms. After all, one of their main objectives is to create the foundation for a resilient banking system.”

Full speech on EC

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