Banking in Europe must comply fully with globally agreed rules says Eesti Pank
Eesti Pank together with other central banks and financial supervision authorities considers it vital for the banking industry in Europe to apply internationally agreed rules in full and on time.
The heads of 25 central banks and financial supervision authorities sent a joint open letter to the European Commission on 7 September emphasising the importance of a banking industry built on firm foundations. The letter highlights the need to bring banking regulation in the European Union fully and consistently into line with internationally agreed rules known as Basel III framework.
The European Commission is currently working on a proposal for updated rules on capital requirements for European banks. This will add to the European Union’s legislative framework the most recent part of the Basel III framework, which has not yet been applied after it was agreed in 2017. Countries are expected to have introduced the new rules by 2023.
Like the other signatories to the letter, Eesti Pank considers it vital that the capital requirements framework of the European Union not differ from the globally agreed standards. Loopholes appearing in the tightly interconnected international banking market could leave banks operating under unequal conditions, make regulation excessively complex, and start in the longer term to work against the goal of stability in the banking system.
The letter also emphasised that the principles of capital calculation must be applied equally to both the parent banks of groups and to their subsidiaries. This is particularly important for countries like Estonia, where foreign banks are a large part of the banking market.
The central banks and financial supervision authorities highlight three principles in the letter sent to the Commission that should be considered when the Basel III framework is implemented in the EU banking regulation.
- The new requirement for an output floor to stop the risk weights at banks that use the internal models from falling too far should be applied following the Basel III framework, and like other requirements should be applied equally to banking groups, subsidiary banks and individual banks.
- The new and more risk sensitive approach to be applied to banks using the standard approach should be based on the Basel III framework.
- European Union deviations from the global standards for the capital requirements framework should be kept to a minimum.
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