Brussels, 16/07/2013 (Agence Europe) - The CRD IV legislative package to increase the solvency of the 8,000 banks in the EU comes into force on Wednesday 17 July.
CRD IV, by means of a regulation and a directive, transposes the new global standards on bank capital (the Basel III agreement) into EU law (see EUROPE 10828). The new rules require banks, by 2019, to increase their top quality capital requirements from 2% to 4.5% of total capital; member states will be allowed to set stronger prudential requirements for banks, requiring them to keep sufficient capital reserves and liquidity of up to 8% of total assets; banks will have to be able to cover their own cash flow for 30 days in the event of a crisis; banks will be required to detail profits made and taxes paid in each country where they do business; and a process is introduced to gradually phase in (by 2018) a compulsory leverage ratio to restrict bank debt.
As co-legislator on this issue, the European Parliament forced the member states to agree to introduce tighter rules to restrict bank bonuses, which the European Commission did not suggest in its initial draft. For the first time (in the EU), bonuses will not be allowed to exceed fixed pay (1: 1 ratio) unless the majority of shareholders decide on a 1: 2 ratio, in which case 25% of the bonus must comprise instruments convertible into capital that cannot be cashed in within the first 5 years or more. These rules will also apply to foreign banks with branches in the EU and the branches of European banks outside Europe. (MB/transl.fl)