Banks, EU reaches agreement on Basel III rules

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(Finance) – I Presidency negotiators of the Council and the European Parliament have reached a provisional agreement on the implementation of Basel III reforms, which mainly affect the regulation of capital requirements of banks. The Basel III accords were reached by the EU and its G20 partners in the Basel Committee on Banking Supervision with the aim of making banks more resilient to possible economic shocks. Basel III includes a series of measures aimed at improving prudential standards, supervision and risk management of banks in response to the global financial crisis of 2007-2008.

Under the tentative deal, the negotiators agreed how implement the so-called “output floor”limiting the variability of banks’ capital levels calculated using internal models, and appropriate transitional arrangements to allow market participants sufficient time to adapt.

The negotiators also agreed to make improvements in the areas of credit risk, market risk and operational risk. They also agreed to include further proportionality in the rules, especially for small and non-complex institutions.

The agreement to implement the Basel III rules comes just a few months after bankruptcy of some US banksincluding Silicon Valley Bank, and theacquisition of Credit Suisse by UBS. “This is an important step forward that will help ensure that European banks can continue to operate even in the event of external shocks, crises or emergencies,” he said Elisabeth SvantessonFinance Minister of Sweden, which holds the rotating presidency of the EU.

The deal also includes a harmonized framework of “fit and proper” to assess the suitability of members of institutions’ management bodies and key function holders. Similarly, an agreement was also reached on rules to safeguard supervisory independence, in particular by providing for a minimum cooling-off period for staff and members of governing bodies of competent authorities before they can take up positions in supervised entities and a limit on the time in office for members of governing bodies.

The negotiators also agreed on a transitional prudential regime for the cryptocurrencies and changes to improve the management of ESG risks by the banks.

Under the provisional agreement, the negotiators agreed to harmonize the minimum requirements applicable to bank branches from third countries and the supervision of their activities in the EU.

The deal was agreed “ad referendum” and is therefore provisional as it still needs to be confirmed by the Council and Parliament before it can be formally adopted.

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