Adopting changes to the Capital Requirements Regulation (adopted with 41 votes to 1 and 14 abstentions) and the Capital Requirements Directive (adopted with 49 votes to 2 and 7 abstentions) MEPs agreed on the need to faithfully implement the Basel III reform, while avoiding a significant increase in overall capital requirements for the EU banking system. MEPs also aimed at achieving a harmonised internal market for banking with reduced compliance and reporting costs, especially for small and non-complex banks.

Capital requirements and transitional periods

MEPs agreed that the “output floor” setting lower limit on the capital requirements calculated by banks using their internal models should be consolidated at the EU level in order to have comparable risk weights and avoid variations in capital levles. Moreover a competent authority should be able to address inappropriate distribution of capital among banking groups and propose a capital redistribution.

Transitional arrangemts for low risk exposures secured by mortgages on residential property have been agreed on. An extention of the transitional periods is possible but no longer than four years.

Environmental risks and management assesment

Among environmental, social and governance risks, taking into account the EU carbon neutraility by 2050 objective and relevant agreed EU sustainability goals, MEPs focused on environmental risks. They agreed on strengthed reporting and disclosure requirements for ESG risk. European Banking Authority (EBA) is mandated to assess whether a dedicated prudential treatment of exopsures would be warrented. Based on that report the Commission might adopt a legislative proposal in this regard.

MEPs also want banks to disclose their exposure to crypto-assets and crypto assets services as well as a specific description of their risk management policies related to crypto-assets. The Commission was invited to submit a legislative proposal by June 2023 on a dedicated prudential treatment for exposures to crypto-assets.

In Capital Requirements Directive, MEPs addressed suitability of members of management bodies, which should be sufficiently diverse and gender-balanced in order to present independent opinions and respond to challenges. They also want to introduce measures to ensure that a key function holder is replaced if that person ceases to comply with suitability criteria.

Finally, in order to preserve a level playing field in the EU, MEPs adopted a third country branches regime supervision. New third country branches must not commence their activities in a Member State until the EBA and the third country have concluded a Memorandum of Understanding (MoU), providing a clear cooperation framework, including exchange of information in on-going supervision, crisis management and resolution.