What Will The New Basel III Regulation Mean For The EU Banking World? – Charges, Mortgages, Indemnities
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The European Parliament, the Member States, and the European
Commission have agreed on a preliminary compromise to implement
Basel III, the internationally agreed banking supervision
standards, into European law. This agreement will modify the
capital requirement regulations and directives for banks (CRR III
and CRD IV). The banking package will also include additional
regulations for crypto assets and sustainability risks. The EU is
the first jurisdiction worldwide to translate all elements of the
new Basel framework into its own laws, in some areas even exceeding
Basel regulations to support a sustainable financial industry.
Under the compromise, the core principle of the Basel
Committee’s “output floor” will remain. This
principle dictates that banks must calculate their capital
requirements based on standardized models instead of their own
internal models, which previously allowed banks to reduce their
capital needs. The new regulations will require that banks’
capital needs calculated using internal models must be at least
72.5% of capital requirements calculated by the standard approach
for credit risks. The internal model approach can therefore only
yield results 27.5% lower than the standard approach. Small and
medium-sized banks will have slightly less strict rules.
The new regulation will come into force in 2025. For the first
year, a standard approach minimum quota of 50% is stipulated. This
quota will gradually increase and only reach 72.5% at the end of
2029. Banks financing mainly businesses without credit ratings will
have an extended transition period until 2032, similarly for banks
with low credit risk, like in the mortgage business.
The compromise also tightens supervision regulations regarding
the suitability of bank managers for leadership positions and
introduces new cooling-off rules to prevent conflicts of interest
when personnel move from a bank to a supervisory authority.
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