The European Commission proposed amendments to the Capital Requirements Regulation (CRR 2) and to the Bank Recovery and Resolution Directive (BRRD 2) in November 2016. The European Council has now agreed its response to these proposals.
However, the European Parliament has not yet finalised its negotiating position (although the Economic and Monetary Affairs Committee put forward its proposed amendments to CRR 2 on 19 June), so we do not yet have a final version of CRR 2 and BRRD 2 agreed among the Commission, Council and Parliament.
The Commission's November 2016 proposed amendments focused primarily on implementing the Basel Committee's revised market risk framework, the FSB's total loss absorbing capacity (TLAC) “term sheet” for G-SIBs, exposures to central clearing houses, counterparty credit risk, equity exposures to collective investment schemes, the net stable funding ratio, and public disclosures by banks.
Now that the Basel Committee has put back the implementation date of the revised market risk framework from 2019 to 2022, the European Council has proposed that:
Net stable funding ratio
The gross derivative liabilities add-on should be set at 5 percent, subject to the Basel Committee agreeing any new standards for this. This should avoid possible unintended consequences on the functioning of European financial markets and the provision of risk hedging tools to end-users.
Risk weight adjustments
The Council response confirms the lower risk weight for SMEs (a 23.81% reduction in the risk weighted exposure amount for SME exposures of up to EUR 1.5 million, and a 15% reductions for SME exposures beyond that). In addition, the Commission should review the treatment of high quality infrastructure projects three years after the CRR 2 enters into force, in order to assess its impact on the volume of infrastructure investments and the quality of investments.
The Council's response focuses on: