Parts of EU banking reform to be fast-tracked

The European Parliament, European Council and European Commission reached an agreement on Wednesday regarding elements of the review of the Bank Recovery and Resolution Directive (BRRD) and of the Capital Requirements Regulation (CRR) and Directive (CRD) proposed in November 2016.

The BRRD agreement creates a new category of unsecured debt in bank creditors’ insolvency ranking, establishing an EU-wide approach on the priority ranking of bank bond holders in insolvency and in resolution.

The CRR/CRD agreement implements the new International Financial Reporting Standard (IFRS 9). This is intended to help mitigate the impact of IFRS 9 standards on EU banks’ capital and ability to lend. It will also aim to avoid potential disruptions in government bond markets that would result from rules limiting large exposures to a single counterparty.

Valdis Dombrovskis, vice-president for financial stability, financial services and capital markets union, said the agreements “are the first deliverables of our banking risk reduction package”.

He added: “First, harmonised rules for bank bond holders in a situation of insolvency gives banks clarity for building up buffers to absorb losses and protect taxpayers. It is a key step towards complying with the global standard on Total Loss-Absorbing Capacity (TLAC). This measure will also enhance the effectiveness of bank resolution processes.

“The second agreement gives banks more time to adjust to the introduction of the new accounting standard IFRS 9 and to the expiry of certain exemptions from the large exposure limits, thereby avoiding disruption in lending and in government bond markets.”