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EU Parliament approved on April 16 new capital requirements for banks and limits to variable remuneration

04/16/2013
Commentaries

The EU Parliament approved on April 16, 2013 an important legislative package that imposes more demanding capital requirements for banks with the intention of facilitating the credit flow to the real economy and of reinforcing the sector in dealing with future crises. In addition, limits are fixed to variable remuneration of banks. The new rules, the Regulation EU - CRR - and the fourth update of the Directive -CRD IV- will be required to be approved by the Council and they will be in force from January, 2014. This legislative package transposes to EU law the rules of Basil III.

Capital requirements

Banks will be forced to have 8% good-quality capital, of which just over half must be Tier 1 and lowest-risk (the double of the current percentage). This capital has to be reasonably liquid, i.e. readily convertible into cash needed to pay depositors and creditors in an emergency. In addition, it is established the duty to hold a capital conservation buffer to absorb losses and protect their capital and a counterciclycal capital buffer.

Likewise, to stimulate the financing to SMEs, the new rules reduce the risks that must be assigned to loans to these companies that reduce the amount of capital that banks must set aside to cover loans that could turn bad.

Variable remuneration

It is found, with general character, that the variable remuneration of the bankers cannot overcome the fixed annual salary. Nevertheless, it might manage to duplicate it if, at least 66 % of the shareholders who have, at least, half of the capital accept it (or 75 % of the votes if there is no quorum). In addition, at least 25 % of the bonus that overcome the fixed salary will have to be deferred in a minimal term of 5 years.

The aim of these measures is to avoid the assumption of excessive speculative risks and to impose some minimal thresholds, considering that, up to the moment no limit existed to these bonuses.

Transparency and supervision

The approved legislation will require banks to publish profits made, taxes paid and subsidies received country by country, as well as turnover and number of employees. From 2014, these figures should be reported to the European Commission and they will be published from 2015.

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