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ECON on CRR 2, CRD 5 and BRRD 2

ECON on CRR 2, CRD 5 and BRRD 2

Amendments to the Commission's November 2016 proposed CRR 2, CRD 5 and BRRD 2.

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ECON has published its recommended amendments to the Commission's November 2016 proposed CRR 2 (PDF 2.76 MB), CRD 5 (PDF 863 KB) and BRRD 2 (PDF 842 KB).

These recommendations go to the European Parliament for approval, following which the Commission, Council and Parliament enter trilogue negotiations. We covered the Council's responses to the Commission's proposals in last month's update.

ECON's main recommendations are:

Market risk

On the timetable for the revised market risk capital requirements:

  1. EBA Report (by 30 September 2019) on the impact on banks in the EU of the Basel Committee's revised market risk capital requirements;
  2. Commission legislative amendments (by 30 June 2020), as required, on implementation;
  3. In the absence of a legislative proposal from the Commission, banks using the simplified approach or the IMA should calculate their own funds requirements for market risks by applying a factor that increases from 60% in January 2022 to 100% in January 2026.

On the substance of the market risk requirements, a revised exposure method for banks with limited derivative activities, and allowing banks to use data aggregators to model risk factors.

Proportionality

A more proportional approach for small and non-complex banks, including a simplified version of the net stable funding ratio, and calls on the EBA to simplify the supervisory reporting package for these banks.

Leverage ratio

A G-SIB leverage ratio surcharge at half the risk-weighted capital ratio surcharge.

NSFR

A 5% required stable funding factor for derivatives, and a 0% factor for highly collateralised assets with a residual maturity of less than six months resulting from secured lending transactions and capital market-driven transactions with financial customers.

SMEs

The threshold for SME exposures subject to a 23.81% reduction in risk weighted exposures should be raised from €1.5 million to €3.0 million.

Pillar 2

Pillar 2 capital add-ons should be limited to bank-specific risks, and not used to reflect systemic risk.

Systemic risk buffer

A SIB buffer can be applied of up to 3% (currently 2%), or at a higher rate subject to approval by the Commission.

Intermediate parent undertaking (IPU)

A third-country group could have two EU IPUs, if the establishment of a single intermediate IPU would conflict with a mandatory third country requirement for separation of activities, or hinder resolvability.

Insurance subsidiaries

No need, under certain conditions, for banks to deduct investments in insurance subsidiaries from own funds.

Supervisory reporting

The European Commission should create an integrated and standardised system for the reporting of statistical and regulatory data for all EU banks.

Remuneration

Banks should apply gender neutral remuneration policies.

TLAC and MREL

Existing TLAC and MREL instruments should be grandfathered.

The eligibility criteria for MREL in BRRD 2 should be aligned with those in CRR 2 for TLAC.

A liability should not count as MREL eligible if it is bought by retail clients, unless retail clients invest no more than 10% of their financial instrument portfolio and the amount invested is at least EUR 10,000.

Any marketing of MREL eligible instruments should make clear that they could be bailed-in, and that MREL debt instruments are considered to be complex under MiFID 2.

Banks with sufficiently high capital ratios should be allowed to meet MREL requirements with regulatory capital instruments, without having to issue additional debt instruments.

Member States should ensure that their national insolvency laws reflect the loss absorption hierarchy under resolution.

Any suspensions of banks' obligations in resolution should be limited to a maximum of two working days.

The maximum MREL requirement should not exceed the higher of (a) a risk-based capital ratio of 18%, or (b) a non-risk-based ratio of 6.75%. However, resolution authorities can go above this for G-SIBs.

Banks should comply fully with MREL requirements by 1 January 2024, and with an intermediate target by 1 January 2022.

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