Setting an upper limit of 3% for the leverage ratio is one of the key measures of the revision of the banking prudential rules (CRD-CRR legislative package) to be presented by the European Commission next week.
At a conference on the future of the European banking sector hosted by the think tank Bruegel on Tuesday 15 November, Commissioner for Financial Services Valdis Dombrovskis, confirmed the plan to bring in a binding leverage ratio of 3%. Embedding this backstop and combining it with capital requirements weighted on the basis of risk will make it possible to avoid the errors of the past, he said, in reference to the banks that faltered during the financial crisis of 2008 due to excessive indebtedness that was inadequately financed. Furthermore, after the LCR, the Commission will bring in a NSFR (net stable funding ratio) aiming to ensure that European banks have enough long-term liquidity (deposits, bonds, inter-bank loans) to finance long-term lending.
The legislative proposal will also include provisions to transpose the TLAC (total loss-absorbing capacity) standard agreed upon at G20 level into EU law. This will allow us to be certain that the large systemic banks can also be restructured if necessary, Dombrovskis explained.
The Commission will also make changes to the banking prudential rules to stimulate the financing of the economy (see EUROPE 11665). In particular, capital requirements will be reduced when the loan granted concerns infrastructure projects considered less risky. Additionally, small financial institutions will see their requirements reduced. The costs related to holding certain financial instruments deemed high quality (e.g. covered bonds, certain securitised instruments, derivatives used for coverage purposes) will also be reduced. (Original version in French by Mathieu Bion)