This background note looks i.a. at why the new rules have been set out in two legal instruments - a regulation and a directive - and how they have changed compared to the previous rules in force. (Includes link to further explanatory note by EPP/Köster.)
The EU Capital Requirements Regulation (CRR) and Directive (CRD) aim to stabilise and strengthen the banking system by making banks set aside more and higher quality capital as a cushion against crises. The new rules should also foster a convergence of supervisory practices across the EU. Banks that are better able to withstand future crises should be more capable of financing investment and growth.
This background note looks at why the new rules have been set out in two legal instruments, a regulation and a directive, and how they have changed compared to the previous rules in force. After Parliament's vote, the Council needs to approve the rules formally. The Regulation and the Directive will then be published in the Official Journal (OJ) and enter into force. The new rules will apply from 1 January 2014, if published in the OJ by 30 June 2013, otherwise from 1 July 2014.
Why two legal instruments?
The new legislation consists of two instruments governing capital requirements for investment firms and credit institutions, including banks.
The Capital Requirements Regulation (CRR), a new instrument added during the current revision of the existing Capital Requirements Directive, lays down prudential requirements for capital, liquidity and the credit risk for investment firms and credit institutions in EU Member States.
As a regulation, the CRR applies directly in every Member State. It can therefore impose a single set of rules across the EU, thus leaving no scope for arbitrary interpretation and ensuring certainty as to the law for all EU single market players.
The directive, by contrast, will have to be incorporated into the national laws of the member states. The rules on bankers' remuneration and bonuses, prudential supervision, corporate governance and capital buffers will remain the responsibility of the Member States' national competent authorities.
Parliament's key changes to the Commission proposal
The European Parliament has changed the original Commission proposal with regard to:
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bonuses - the salary to bonus ratio of 1:1, or up to 1:2 with the majority support of the board,
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a mandatory buffer of Tier 1 capital requirement be included for banks that member states identify as "global systemically important institutions" (G-SIIs),
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transparency rules,
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management board diversity idea, and
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benchmarking.
See link below for further information on:
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Capital Requirements Regulation - single rule book
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Capital Requirements Regulation - capital and risk
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Capital Requirements Regulation - liquidity
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Capital Requirements Regulation - leverage
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Capital Requirements Regulation - lending to small firms
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Capital Requirements Directive - remuneration
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Capital Requirements Directive - bonuses
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Capital Requirements Directive - flexibility and buffers
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Capital Requirements Directive - benchmarking
© European Parliament
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