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At the same time, the revision is intended to take account of specific European circumstances, to make a significant contribution to boosting the EU economy by increasing lending capacity and to facilitate the establishment of deeper, more liquid capital markets.
The overall objectives underpinning the revision of the CRR and CRD by the Commission are welcomed, but there is still a need for further improvement in some key areas.
Firstly, the report significantly strengthens the Commission’s approach - which seeks to bring about more proportionality for small financial institutions - by reducing institutions’ compliance costs without watering down prudential standards.
Secondly, the report seeks to take greater account of the specific features of the European economy and the work banks do to strengthen that economy. These measures are intended to boost lending to small and medium-sized enterprises and social enterprises and broaden the scope for providing economic stimulus through the activities of promotional banks and investment in future-oriented areas, such as green assets and badly needed infrastructure.
Thirdly, the complex market risk-related capital requirements laid down in the Commission proposal are to be implemented, despite the delays in bringing in similar requirements in the USA. The report takes care to ensure, however, that the requirements generally do not go beyond the Basel standard and seeks to facilitate compliance by financial institutions by introducing a clearly defined and longer transposition phase.
Fourthly, with a view to enhancing financial stability, and in keeping with the principle of upward proportionality, a number of additional requirements are imposed on large banks, such as a higher leverage ratio for global systemically important institutions and the disclosure of a remuneration quota.
Fifthly, the draft report seeks to advance the development of the banking union by introducing cross-border exemptions from capital and liquidity requirements combined with full guarantees of financial stability. With a view to breaking the log jam in the Council on this issue, it is proposed the gradual introduction of partial exemptions.
Lastly, the Commission’s clarification that capital add-ons under the second pillar are primarily intended to cover institution-specific risks is welcomed. Due account is then taken of macroprudential risks by strengthening the relevant instruments, such as an adjustment of the leverage ratio geared to the O-SII buffer and the countercyclical capital buffer.