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On Thursday, May 30, 2024, the European Union officially approved the implementation of the final batch of Basel III rules, a set of stricter bank capital standards, starting in January 2025. These new rules build on safeguards introduced after taxpayers had to bail out lenders during the global financial crisis over a decade ago.
The Basel III rules, developed by the Basel Committee comprised of banking regulators from the world’s major economies, are already largely implemented. However, this final batch includes a key innovation known as the output floor.
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An Output Floor for Fair Competition
This safeguard aims to prevent large banks, which can use their own computer models to calculate capital buffers, from exploiting the system to the detriment of smaller banks, which must use more conservative calculation methods established by regulators.
“The rules adopted today will ensure that European banks can continue to operate in the face of economic shocks,” said Vincent Van Peteghem, Belgium’s Finance Minister, who currently holds the EU presidency. “They will also make the banking sector more sustainable and better able to deal with the green and digital transitions. This is an important step towards deepening the Banking Union.”
Harmonization of Requirements and New Regimes for Crypto Assets
Besides the Basel standards, the adopted package includes other rules to harmonize minimum requirements across the 27 member countries for authorizing branches of banks headquartered outside the EU.
The package also includes transitional capital requirements for banks’ holdings of crypto assets and changes to improve how lenders manage environmental, social, and governance (ESG) risks.
Strengthening the Resilience and Supervision of European Banks
The new rules adopted by the European Council aim to make EU banks more resilient to economic shocks, strengthen their supervision, and improve risk management. These reforms are crucial to ensuring that European banks can withstand economic disruptions and support the transition towards more sustainable and digital economies.
Vincent Van Peteghem emphasized the importance of these reforms in deepening the Banking Union and enhancing the sector’s resilience. The updated rules amend the Capital Requirements Regulation and the Capital Requirements Directive, translating the Basel III standards into EU legislation.
Rules to Be Published Soon
The adoption of these rules marks the final step in the implementation process. The amended regulation and directive will be published in the EU’s Official Journal and will enter into force 20 days later. Member states will have 18 months to transpose the directive into national legislation, with the regulation becoming applicable from January 1, 2025.
This adoption by the EU of the final Basel III rules represents a significant step in strengthening the stability and resilience of the European banking sector in the face of future economic challenges.
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Sources : https://www.tradefinanceglobal.com/posts/eu-confirms-january-2025-start-for-final-basel-rules/
