In the struggle for financial stability, the Irish Presidency and the European Parliament have achieved a breakthrough by reaching consensus on the issues that stood in the way of the adoption of the Basel III agreement into European law. Both regulators and the industry believe that the Capital Requirements Directive (CRD IV) will lead to a more robust banking sector as a whole. The Directive specifies how much capital banks will need to hold, what quality that capital must have and the nature of the liquidity buffers banks must build up. While these requirements ensure that the sector is better equipped to prevent crises, the European Banking Federation cautions that the banks’ role of supporting the real economy could eventually be compromised, given the degree of flexibility granted to national authorities to set higher domestic prudential requirements within the scope of macro-prudential oversight. Also, regulation in the area of transparency and remuneration is likely to have a negative impact on the competitiveness of the European banking sector. Since those restrictions are not applied in other financial centres, Europe’s banking industry might be weakened in the long run. In the likely case that the Plenary of the European Parliament formally approves the final text on 17 April, it should be published in the Official Journal by the end of June and put into force on 1 January 2014. Looking forward, the implementation of such an extensive regulation, its interplays with the Single Supervisory Mechanism as well as the removal of national discretions are relevant issues that banks and supervisors will have to contend with.
By Gonzalo Gasos, Senior Adviser – Banking Supervision : G.Gasos@ebf-fbe.eu