Today, the European Commission (EC), in light of the ongoing economic crisis, adopted a proposal to further amend the Capital Requirements Directive, previously adopted by the EC in 2006 to address the business of credit institutions and the capital adequacy of investment firms and credit institutions. The current proposal, and related FAQ's, represent part of the EU's response to the financial crisis, builds upon the recommendations proposed by the High Level Group for reforming European financial supervision and regulation, and the subsequent establishment of a "European Systemic Risk Board" which will monitor and assess potential threats to financial stability, and further reflects other consultations with Member States, banking supervisors and industry, concluding that "there is widespread recognition that further regulatory reform is needed to address weaknesses in the regulatory capital framework and in the risk management of financial institutions. The proposal addresses "risks linked to two major causes of the current crisis, securitization and remuneration," and specifically, is:  

  • Designed to tighten up the way in which banks assess the risks connected with their trading book;
  • Impose higher capital requirements for re-securitizations;
  • Increase market confidence through stronger disclosure requirements for securitization exposures; and
  • Require banks to have sound remuneration practices that do not encourage or reward excessive risk-taking.

Internal Market and Services Commissioner Charlie McCreevy stated that the new rules proposed rules "target some of the investments and practices that lie at the root of the financial crisis.