European legislators negotiate the final rules to implement Basel III
The EU Council has published an information note on the proposed revisions to the Capital Requirements Regulation (CRR) setting out the opening negotiating positions of the EU Commission, the EU Parliament and the Council. With CRR III designed to implement the remaining Basel III banking standards, the final package will include new provisions around credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor. Final negotiations are on-going and an agreement is expected in the next few months, with the final text published by the end of the year.
Specifically on market risk and the implementation of the final Fundamental Review of the Trading Book (FRTB) standards, the Parliament is suggesting that banks should be able to hold several types of instruments usually held in the trading book (including listed equities) as banking book positions, subject to the approval of the national regulator and when that position is not held with trading intent.
The forthcoming implementation of Basel III is also referred to by the European Supervisory Authorities (ESAs) in their recent Spring report on risks and vulnerabilities in Europe’s financial system. Further, the ESAs call on firms and regulators to remain prepared for a deterioration in asset quality and to keep a close eye on loan loss provisioning. Organizations are also encouraged to consider the broader impact of policy rate increases and to closely monitor liquidity risks arising from investments in leveraged funds and the use of interest rate derivatives.
Bloomberg
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