EU adopts new framework to strengthen banking union

The Council of the European Union on Tuesday adopted a comprehensive legislative package which aims to reduce risks in the banking sector and further reinforce banks' ability to withstand potential shocks.

The package contains amendments to the Capital Requirements Regulation, which reinforces the capital and liquidity positions of banks and strengthens the framework for the recovery and resolution of banks in difficulty, according to a Council press release.

It also includes key measures like a binding leverage ratio requirement for all banks as well as a leverage ratio buffer for all global systemically important financial institutions; a net stable funding requirement; and a new market risk framework for reporting purposes.

"Today we have adopted a central piece of Europe's financial reform agenda," commented Eugen Teodorovici, minister of finance of Romania, which currently holds the Council presidency. "It is a stepping stone in the deepening of the Economic and Monetary Union. It also brings the EU in line with its international commitments.

"Thanks to the introduction of key measures, such as the binding leverage ratio for all banks and the 'total loss-absorbing capacity' for the biggest institutions, banks will be better capitalized and better equipped to withstand market turbulences," Teodorovici said.

The proposals implement reforms agreed at international level following the 2007-2008 financial crisis to strengthen the banking sector and address the remaining challenges to financial stability, said the press release.