In this connection, EU ambassadors have endorsed a full package of risk reduction measures, intended at bringing down risks in the EU banking sector.
The endorsement is for an agreement reached between Romanian presidency and the EU Parliament on a set of revised rules to achieve the objective.
Romania Finance Minister Eugen Teodorovici said: “The risk reduction measures agreed today will ensure that banking sector holds enough capital to lend safely to consumers and businesses. At the same time, taxpayers are shielded from any difficulties which banks might be facing.”
The risk reduction measures package agreed by both the European Council and the Parliament is made up of two regulations and two directives, pertaining to bank capital requirements and the recovery and resolution of banks in difficulty.
According to the EU, the decision taken by it is a conclusion of a negotiating process initiated in November 2016. A first agreement was reached on the key elements of the banking package and confirmed by the Council in December 2018.
The EU said that the intention of the risk reduction package is to put into force reforms agreed at international level in the wake of the 2007-2008 financial crisis to strengthen the banking sector and also for addressing outstanding challenges to achieve financial stability.
The reforms, which were presented in November 2016, include elements agreed by both the Basel Committee on Banking Supervision and the Financial Stability Board (FSB).
One of the important measures agreed for risk reduction in the banking system is the enhancement of the framework for bank resolution. The EU said that for this, global-systemically important institutions (G-SIIs) need to have more loss-absorbing and recapitalization capacity by defining the requirements with respect to the amount and quality of own funds and eligible liabilities (MREL) for an effective and orderly bail-in process.
The risk reduction package also bolsters bank capital requirements to cut down incentives for excessive risk taking through the inclusion of a binding leverage ratio, a binding net stable funding ratio and having risk sensitive rules for trading in securities and derivatives, said the EU.
The banking package has measures to boost banks’ lending capacity and to enable an increased role for banks in the capital markets.
Also contained in the banking package is a framework for the cooperation and information sharing between multiple authorities involved in the supervision and resolution of cross-border banking groups.
