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EU Banking Union Package Now in Force

AUTHORs: Patrick Molloy Services: Finance and Capital Markets DATE: 15/07/2019

Regulation (EU) 2019/876 (CRRII), Regulation (EU) 2019/877 (SRMRII), Directive (EU) 2019/878 (CRDV) and Directive 2019/879 (BRRDII), known collectively as the "EU Banking Package" entered into force on 27 June 2019.

Regulation_EU_2019878 PDF | 0.73 MB

This package puts in place a new framework to strengthen the banking union and reduce risks in the financial system. It contains amendments to the capital requirement legislation (the Capital Requirements Regulation (Regulation 575/2013) and the Capital Requirements Directive (Directive 2013/36/EU)) which reinforce the capital and liquidity positions of banks, and strengthens the framework for the recovery and resolution of banks in difficulty (the Bank Recovery and Resolution Directive (Directive 2014/59/EU) and the Single Resolution Mechanism Regulation (Regulation 806/2014)).

The package includes the following key measures:

  • a leverage ratio requirement for all institutions as well as a leverage ratio buffer for all global systemically important institutions;
  • a net stable funding requirement;
  • a new market risk framework for reporting purposes, including measures reducing reporting and disclosure requirements and simplifying market risk and liquidity rules for small non-complex banks in order to ensure a proportionate framework for all banks within the EU;
  • a requirement for third-country institutions with significant activities in the EU to have an EU intermediate parent undertaking;
  • a new total loss absorbing capacity (TLAC) requirement for global systemically important institutions;
  • enhanced Minimum Requirement for own funds and Eligible Liabilities (MREL) subordination rules for global systemically important institutions (G-SIIs) and other large banks; and
  • a new moratorium power for the resolution authority.

The package also includes a number of targeted measures to cater for EU specificities, such as incentives for investments in public infrastructures and SMEs or a credit risk framework facilitating the disposal of non-performing loans.

The Components of the Package
Regulation (EU) 2019/876 (CRRII) amends the Capital Requirements Regulation by imposing a net stable funding requirement; implementing the international standard on total loss absorbing capacity for EU global systemically important banks; facilitating the management of NPLs by EU banks; and implementing the new Basel standardized approach to counterparty credit risk.

Regulation (EU) 2019/877 (SRMRII) amends the Single Resolution Mechanism Regulation by implementing a new standard for total loss absorbing capacity; introducing resolution entities and resolution groups; setting out requirements on supervisory reporting and public disclosure relating to MREL; and introducing new test requirements for a firm contemplating the sale of MREL liabilities.

Directive (EU) 2019/878 (CRDV) amends the Capital Requirements Directive by the introduction of a requirement for large institutions to publically disclose their environmental, social and governance related risks; introducing new binding Pillar 1 requirements; strengthening market risk and large exposure requirements; introducing a new requirement to establish an intermediate parent undertaking for certain third country groups in the EU by 2023; and updating the resolution rules.

Directive 2019/879 (BRRDII) amends the Bank Recovery and Resolution Directive and Directive 98/26/EC (the Settlement Finality Directive) by granting exemptions in relation to the contractual recognition of bail-in provisions; giving early intervention powers to regulators; introducing a requirement to contractually recognise resolution stay powers; and amending the calibration of MREL requirements.

For further information, please get in touch with  Patrick Molloy or your usual Matheson contact.