On 5 December 2018, the European Parliament announced that it had reached agreement with the European Council of the EU on the Banking Package – the Capital Requirements Directive V (CRD V), Capital Requirements Regulation II (CRR II), Bank Recovery and Resolution Directive II (BRRD II) and the Single Resolution Mechanism Regulation II (SRMR II). The Plenary will have to officially adopt the agreement, the vote is expected to take place early next year.

In its announcement of the agreement the European Parliament noted that two deals are set to be concluded with negotiators, concerning bank resilience, and a roadmap for banks to deal with losses.

The first deal concerns amending the EU’s prudential requirements (CRD V / CRR II) by  increasing lending capacity and creating deeper and more liquid capital markets. With regards this deal, negotiators have agreed to:

  • ensure banks are treated proportionately, according to their risk profiles and systemic importance. MEPs have inserted a definition of a “small and non-complex institution” that should be subject to simplified requirements, in particular in the area of reporting;
  • a binding 3% leverage ratio and an additional 50% buffer for global systemically important institutions;
  • a simplified net stable funding ratio, rules for ascertaining whether an institution holds sufficient stable funding to meet its funding needs during a one-year period under both normal and stressed conditions; and
  • extending reduced capital requirements to SME exposures beyond €2.5 million.

The second deal relating to bank resilience concerns the BRRD II and the SRMR II. Key areas of agreement include:

  • requiring global systemically important banks (GSIIs) to comply with the Financial Stability Board’s total loss-absorbing capacity (TLAC), while non-GSIIs will remain subject to the EU’s minimum requirement for own funds and eligible liabilities (MREL) rules;
  • amending the eligibility criteria for the instruments and items that could count towards compliance with MREL rules, aligning them closely with the eligibility criteria provided in the TLAC standard for the TLAC minimum requirement;
  • inserting rules for applying a moratorium power to suspend payments by banks that are getting into difficulty;
  • introducing the lessons learned from recent resolution cases in the BRRD; and
  • inserting provisions to protect retail investors from holding bail-inable bank debt when it is not a suitable retail instrument for them. The negotiators also agreed that any financial contract governed by a third country in the EU would be subject to the resolution rules.