A political agreement in principle (general approach) on the banking risk reduction package was still extremely uncertain on Monday 12 March, the eve of the Ecofin Council.
Upon his arrival at the Eurogroup meeting, the outgoing German finance minister, Peter Altmaier, dismissed the chances of an agreement on Tuesday. “I do not think we will reach an agreement tomorrow. There are too many questions awaiting solutions”, he said. France hopes that an agreement is possible, to move quickly onto the risk-sharing plank via the completion of Banking Union in the Eurozone (see other article).
The European Commissioner for Financial Services, Valdis Dombrovskis, was keeping his cards close to his chest, referring only to a general approach in the near future.
The Bulgarian Presidency of the Council hopes for a political agreement by June. According to a diplomatic source, however, there must be a structuring ministerial discussion first for this to be possible.
The compromises on each of the four texts proposed by the Presidency were examined by the national ambassadors to the EU (Coreper) on 7 March (see EUROPE 11978). After these discussions, there were still three political questions outstanding: - the prudential standard on the market risk ('fundamental review of the trading book' or FRTB); - the calibration of the minimum capital requirements (MREL) that can be mobilised in the event of bank resolution; - the scope of application of the regulation and directive on capital requirements (CRR/CRD).
FRTB. The 'risk reduction' package tabled by the Commission aims to translate the FRTB international standard into EU law. In December 2017, however, the Basel Committee announced a three-year delay in the implementation of this standard and now intends to carry out an in-depth examination, to be completed by December 2018, of some of the capital calculations presented in June 2016, which have been deemed insufficient.
According to a Bulgarian note dated 9 March and of which EUROPE has had sight, the compromise currently on the table aims to anticipate the FRTB, but as a reporting requirement whilst the Basel Committee's examination is underway. Basically, this means that banks will be required to make capital calculations and declare the figures to their supervisors, but will not have to hold the amount of capital resulting from these calculations or disclose them to the market.
The Commission would then be given a mandate to reintroduce the FRTB standard as a bank capital requirement through a delegated act in 2019, and then to present a legislative proposal to modify the CRR regulation before the end of 2020.
At Coreper, the member states broadly approved the principle that the institutions would not be bound to abide by the FRTB requirements until the Basel Committee's investigation has been concluded. In particular, several countries are reported to have approved the Presidency's compromise and others stated their willingness to move forward on the basis of the current calculations, as per the progress report of the Estonian Presidency. However, other member states disagreed with this approach, which could effectively mean reporting outdated figures.
MREL. Another big issue is the calibration of the MREL. On this point, two major questions are still open: - the flexibility in setting the subordination level of the MREL by the resolution authorities, and; - the scope of the compulsory subordination level for 'top tier banks', a new category brought in by the Bulgarian Presidency and comprising financial institutions belonging to a banking group with a consolidated balance sheet in excess of €75 billion.
Certain national delegations are calling for very high requirements and giving the national supervisors a greater degree of latitude, whilst others are in favour of better predictability for banking groups, a diplomatic source explained.
Exemptions. The final stumbling block concerns the list of legal entities explicitly exempted from the CRR/CRD framework.
According to our information, Germany has requested an exemption for a national promotional bank and 13 regional development banks.
On this question, the member states' opinions also seem radically opposed: some are calling for the full award of an exemption while others oppose this categorically. (Original version in French by Marion Fontana)