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Banking Regulation
Prudential requirements
The European Union has implemented prudential requirements to enhance the stability of its financial sector and ensure its ability to support various end-users, such as households, firms, and other entities requiring financial services.
EU's Actions and Goals: Post the global financial crisis, the EU introduced prudential requirements to ensure that banks can effectively manage liquidity shocks and absorb losses. These requirements are a crucial part of the EU single rulebook,, designed to bolster the resilience of the EU banking sector while facilitating banks' role in financing economic activity and growth.
Prudential Framework Components:
International Standards and Basel III:
EU's Adaptation of Basel III:
The prudential requirements are a key step in the EU's efforts to create a more robust and resilient banking sector, capable of sustaining financial stability and supporting economic growth.
EU's Actions and Goals: Post the global financial crisis, the EU introduced prudential requirements to ensure that banks can effectively manage liquidity shocks and absorb losses. These requirements are a crucial part of the EU single rulebook,, designed to bolster the resilience of the EU banking sector while facilitating banks' role in financing economic activity and growth.
Prudential Framework Components:
- Capital Requirements Directive (CRD V): A directive forming part of the prudential framework.
- Capital Requirements Regulation (CRR II): This regulation transposes the Basel III international standards into EU law, ensuring a uniform regulatory approach across the Union.
International Standards and Basel III:
- The Basel Committee on Banking Supervision (BCBS), comprising central banks and supervisory authorities from 28 jurisdictions, establishes international banking prudential regulation standards.
- Basel III, developed by the BCBS, sets non-binding international standards, primarily targeting "internationally active banks".
- The EU has adopted these standards into binding EU law, applying them to all EU banks and investment firms. This approach aims to build a strong single market for banks within and across the 27 EU Member States, as well as on a global scale.
EU's Adaptation of Basel III:
- The EU has actively participated in developing BCBS standards on capital, liquidity, and leverage.
- The rules implemented in the EU align with Basel III objectives but are tailored to accommodate the diversity of the EU's banking system. This includes addressing proportionality concerns for smaller and domestically-oriented banks, ensuring that regulations are fit for purpose at both EU and national levels.
The prudential requirements are a key step in the EU's efforts to create a more robust and resilient banking sector, capable of sustaining financial stability and supporting economic growth.