The Commission has announced the next steps towards CRD revision. Under new proposals:
- banks will be restricted in lending beyond a certain limit to any one party. As a result, in the inter-bank market, banks will not be able to lend or place money with other banks beyond a certain amount, while borrowing banks will effectively be restricted in how much and from whom they can borrow. The Commission wants to limit all inter-bank exposures to the higher of 25% of own funds or 150 million;
- "colleges of supervisors" will supervise banking groups that operate cross border within the EU. The Commission had suggested a non-binding co-operation mechanism, but this was not popular with stakeholders, so the proposals introduce a greater eventual responsibility for the consolidating supervisor. The colleges will also co-ordinate liquidity risk management for these banks;
- there will be clear EU-wide criteria for assessing whether "hybrid" capital counts as part of bank capital; and
- originators will be required to keep some risk exposure to these securities, while firms that invest in the securities will be allowed to make their decisions only after conducting comprehensive due diligence. If they fail to do so, they will be subject to heavy capital penalties. Charlie McCreevy highlighted the need for banks to take responsibility for assessing assets they invest in and not just rely on CRAs or anyone else. It is critical all players in a securitisation can understand and explain what is on offer.
Charlie McCreevy welcomed the measures and said it is critical that supervisors work together especially in times of financial turmoil. The proposal, if adopted, will amend the recast CRD and CAD in respect of banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements and crisis management. The Commission plans for Member States to transpose the changes by the end of January 2010 and bring their implementing laws into force by 31 March 2010.