Brussels, 10/10/2014 (Agence Europe) - On Friday 10 October, the European Commission adopted delegated acts for the Solvency II directive (insurance sector) and the regulation on requirements for own funds (banking sector), aiming to promote quality securitisation, guarantee that banks have sufficient cash assets to ride out periods of tension on the markets and allow international comparisons of leverage ratios. This battery of rules shows “that Europe is serious about creating a framework to support investment (…), particularly through promoting safe and transparent securitisation and encouraging investors to invest for the long term”, said European Commissioner for Financial Services Michel Barnier.
Liquidity coverage requirement. This aims to ensure that the banks can survive 30 days of stressed conditions. The delegated act clarifies how to calculate the net cash outflows expected in these times of crisis and the liquid assets the banks must hold in order to cover them. From 1 October, the liquidity coverage requirement will be 60%. This ratio will increase in stages to stand at 100% on 1 January 2018, one year ahead of the international timetable.
The delegated act authorises a broad range of asset-backed securities (ABS) which can be included in a bank's cash buffer. This means that ABS guaranteed by vehicle or consumer loans or loans to SMEs are permitted, moving away from the provisions of the Basel III rules. However, the EU is sticking with the Basel III approach stating that securitised loans may not represent more than 15% of the liquidity buffer. The valuation cuts applied to these instruments varies between 25% and 35% of their market value. The Commission appears to have taken on board Denmark's concerns and takes the view that the guaranteed bonds may represent a larger proportion of the banks' liquidity buffers.
The delegated act for Solvency II aims to encourage insurance companies to inject more funds into the simple and transparent European securitisation markets when acting on the markets as investors, thereby helping these markets to develop and supporting their liquidity levels.
Leverage ratio. The delegated act brings in a common definition of the leverage ratio for EU banks. The decision as to whether to bring in an obligatory leverage ratio will not be made until 2016, the Commission states. (EL)