1 Strengthening the European banking system - CRD IV Technical briefing-20 July-2011

2 Why do we have the CRD IV project? To enhance financial stability and limit the damage of the next financial crisis for taxpayers To create a more resilient banking sector that can absorb economic shocks To live up to our G20 commitment to implement Basel III To enhance the single market in banking services To ensure an international level playing field for European banks

3 Basel III agreement: key elements CAPITALLIQUIDITYLEVERAGE Each bank: -More and better capital -Better risk weights -Conservation buffer -Countercyclical buffer BASEL III Short-term stress Liquidity Coverage Ratio – 2015 Longer term stress Net Stable Funding Ratio – 2018 Leverage Ratio – back stop (with a view to migrating to a binding measure in 2018)

4 CRD IV: Single Rule Book Legislative form: Regulation SINGLE RULE BOOK EUROPEAN COUNCIL OF JUNE 2009: The European Council also recommends […] establishing a European single rule book applicable to all financial institutions in the Single Market. Removing options and discretions Maximum harmonisation of Pillar 1 & Pillar 3 measures

5 Capital: Improved quantity

6 Extra Capital buffers Capital conservation buffer A fixed target buffer of common equity of 2.5% to absorb losses in stressed periods If buffer breached, constraints on banks discretionary distributions Countercyclical capital buffer Banks required to build-up extra buffers in economic upturns of common equity, which can be draw down in a downturn Macro-prudential tool. ESRB role in assuring transparency and coherence of buffer decisions

7 Assessing the impact Short-term costs limited (pre-2019) –Capital 1 percentage point GDP % (EC, Basel) Long-term benefits substantial (post-2019) –Banking crises less likely and if they occur, impact reduced –Financial system more stable and in line with economy Benefits exceed costs –Annual EU GDP growth 0.3-2% (Basel) Transition to new rules (pre-2019) –Larger banks need to reinforce their capital –Smaller banks already exceed new rules

8 Thank you.