EU Commission plans new rules for bank capital as part of reform

The EU Commission planned to propose new rules on bank capital within the European Union by June, according to the EU finance commissioner. The idea is to introduce a reform that was globally agreed on two years ago.

The new rules named Basel III, which was also agreed with the United States, tells that an “output floor” would limit a bank’s capital requirements from diverging to how they would actually be calculated under a new model set by regulators.

The goal of the new rules is to strengthen banks’ ability to resist financial shocks.

Valdis Dombrovskis said that the EU executive’s intent was to make a proposal in the second quarter of 2020 that would turn the reform into EU law.

Dombrovskis called on US regulators and other partners to adopt the Basel reform’s key elements. He added that the EU will not institute the rules before 2026, to give way for a transitional period agreed with its global partners.

He called on banks to express their opinions on the planned reform before its due implementation.

“Prudential rules could favor ‘green’ investments and loans, naturally while keeping prudential considerations in mind,” Dombrovskis said. He added that the reform will consider European specificities to prevent increased capital requirements having negative impact on particular sectors, business models, or activities.