The Capital Requirements Directive IV proposals

Source: Katarina Krempova¸ PKF Malta¸ 10 January 2012

This proposal contains the following new objectives which were chosen by the European Commission with the aim to improve the existing legal framework:

1.       Sanctions

The initiative focuses on the following operational objectives:

  • to set minimum common standards on certain key issues on sanctioning regimes;
  • to reinforce and approximate Member States’ legal framework concerning administrative sanctions and measures;
  • to ensure compliance with EU banking rules;
  • to protect users of banking services;
  • to ensure safety¸ stability and integrity of banking markets.

2.       Effective Corporate Governance

The initiative focuses on the following operational objectives:

  • to increase the effectiveness of risk oversight by Boards;
  • to improve the status of the risk management function;
  • to ensure effective monitoring by supervisors of risk governance.

3.       Provisions preventing the overreliance on external credit ratings

  • It is aimed to reduce reliance on ratings which may affect financial stability and prevent  financial institutions and institutional investors from neglecting their own due diligence and an internal risk management obligations by following issued credit ratings.

4.      Capital Buffers

  • It is aimed to ensure the absorption of looses in stressed periods. The intention is to build up capital in good economic times which will be required during periods of excessive credit growth and released in a downturn. It can be set between 0 % and 2.5 % of risk weighted assets.

To read whole proposal click here

Source: European Commission