The European Parliament voted in favour of the new Capital Requirements Directive (CRD IV) this month. CRD IV incorporates Basel III and consists of a directive and a regulation that include the following measures:

  • Capital requirements are being tightened: banks must set aside a relatively higher core capital as a cushion against unexpected losses. Additional capital requirements apply in the form of a capital conservation buffer, the anticyclical buffer, and the systemic risk buffer. The latter does not originate from Basel III.
  • Banks must maintain specific capital for a temporary deterioration in the creditworthiness of a counterparty in a derivatives contract.
  • An international standard for uniform liquidity rules is introduced
  • A mandatory leverage ratio is intended to apply as per 1 January 2018.
  • The EU wants to simulate lending to small and medium-sized businesses. To encourage this, the nominal risk that banks must assign to these loans is reduced.
  • Bankers' bonuses are restricted to the amount of the annual salary. Only under specific circumstances can the bonus be increased to twice the annual salary.
  • Banks have to disclose profits, taxes paid, and subsidies received country by country, as well as turnover and number of employees.

The texts adopted by the European Parliament are available on its website. The new rules still have to be formally adopted by the Council. This is expected to take place in June 2013. The expected date for CRD IV to take effect is 1 January 2014.