New rules to reduce bank risks and protect taxpayersEuropost
Parliament plenary adopted last Tuesday a significant step towards reducing risks in the banking system and establishing the Banking Union, the EP press service reported. The new rules already informally agreed with Member States concern prudential requirements to make banks more resilient. This should help boosting the EU economy by increasing lending capacity and creating more liquid capital markets, and aiding banks to deal with losses without having to resort to taxpayer funded bailouts.
To ensure that banks are treated proportionately, according to their risk profiles and systemic importance, MEPs ensured that “small and non-complex institutions” will be subject to simplified requirements, in particular with regard to reporting and to putting fewer funds aside to cover possible losses. Systemically important banks, however, will have to have significantly more own funds to cover their losses in order to strengthen the principle of bail-in losses imposed on banks' investors to avoid bankruptcy, instead of state-funded recapitalisation in the EU.
“In the future, banks will be subject to stricter leverage and long-term liquidity rules. Sustainability is also important, as banks have to adapt their risk management to risks that stem from climate change and the energy transition,” rapporteur Peter Simon (S&D, DE) said. Furthermore, as small and medium enterprises (SMEs) carry a lower systemic risk than larger corporates, capital requirements for banks will be lower when they lend to SMEs. This should mean that lending to SMEs will increase.