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Ref. Ares(2018)2646443 - 23/05/2018
 
 
 
 
17th March 2009 

 
 
 
 
 
 
 
 
Issue N° 10 
 
In This Issue 
De Larosière High level Group ponders the future 
 
of financial supervision in the EU 
•  De Larosière report  On February 25th, the High Level Group chaired by Mr de Larosière 
•  G20 
published its report on financial supervision in the EU. This document 

represents a comprehensive assessment of possible policy responses to the 
 
CRD Amendments 
crisis related to the regulatory framework, corporate governance, financial 
•  Comitology 
supervision, and crisis management both within the EU and, to some extent 

also at a global level.  
 
Capital 
Requirements 

The report contains 31 recommendations which hold the prospect of 
Directive: 
challenging projects over the next few years which might materially change 
considering further  the current EU supervisory and crisis management arrangements. 
changes 
•  CRD – future 
The key issues highlighted in the report have fed into the Commission's 
changes 
Communication published on March 4th and which will be further discussed 
during March by the EFC, the ECOFIN and EU Council. It will provide a basis 
•  Home/host branch  for the EU position that will be presented at the G20 meeting in London on 
supervision 
2nd April. 
•  Procyclicality 
Many of the topics included in the report already fall within the EBC's 
•  Suplementary 
mandate, and have been discussed during previous meetings. These topics 
metric in banking will form the basis of the EBC's future workplan. 
regulation 
 
•  Deposit Guarantee 
Schemes 
G20: preparations for the 2nd April Leaders 
•  Early Intervention 
meeting 
 
 

The 15 November 2008 meeting of G20 Leaders and Finance Ministers was 
a historic event, bringing together advanced and emerging economies at the 
 
highest level to determine how to address the global financial and economic 
 
crisis.  
 
All leaders agreed that urgent action was needed in a number of areas, and 
that this action needed to progress in the next few months, through a 
 
process determined and led by G20 Finance Ministers. In light of worsening 
 
economic prospects, closer macroeconomic cooperation to restore growth in 
a broad range of countries, while avoiding negative spillovers, will be a 
 
central theme for the next G20 Leaders in London on April 2nd. 
 
Following the November meeting, the following work streams were 
 
established: Enhancing sound regulation and strengthening transparency 
(WG1); Reinforcing international cooperation and promoting integrity in 
Prepared by: 
financial markets (WG2); Reforming the IMF (WG3); Reforming the World 
Secretariat of the European  Bank and multilateral development banks (MDBs) (WG4); macroeconomic 
Banking Committee 
policy response and framework (which is being addressed directly by G20 
 
Finance Ministers, Central Bank Governors and Deputies) 
Contact: 
Tobias Mackie 
The European Commission represents the EU together with the CZ 
Secretary to the EBC 
Presidency. A G20 Finance Deputies meeting was held in London on 
Tel. +32 2 296 1661 
February 1st. Another meeting will take place on March 12th-13th to prepare 
E-mail: 
the G-20 Finance Ministers and Central Bank Governors Meeting, who will 
xxxxxx.xxxxxx@xx.xxxxxx.xx 
discuss the final report before the G20 Leaders meeting on April 2nd. 
 
 
 



Capital Requirements Directive: State of play 
in the adoption process for an amending 
Directive 
 
The Commission adopted its proposal to amend the CRD (on large 
exposures, colleges, hybrid capital, liquidity risk management, and 
securitisation) in October 2008. After political agreement was reached 
in Council in early December 2008, discussions on the CRD review have 
continued in the early part of 2009 in the European Parliament. On 2nd 
and 11th February, the ECON Committee discussed 285 EP 
amendments  to  the  CRD  in  view  of  a  vote  in  ECON  on  9th  March.  5 
"Trilogue" meetings (bringing together Commission, Parliament and 
Council) are due to take place after the vote in ECON, in addition to 
financial attachés meetings. The final vote in Plenary is expected to 
take place in April (21 - 23). 
 
Capital Requirements Directive: State of play 
of the comitology amendments to the Capital 
Requirements Directive  
 
−  Comitology Amendments to Directive 2006/48/EC 
 
By resolution of 16 December 2008, the European Parliament opposed 
the draft comitology Directive amending Directive 2006/48. The 
resolution states that the EP objects only to a specific provision of the 
draft Directive which lays down disclosure requirements for the 
External Credit Assessment Institutions (ECAIs) while it supports the 
remaining 46 amendments provided by the draft measure.  
 
In its resolution, the EP has requested the Commission to remove this 
provision from the draft comitology Directive and to shift it either to the 
proposal for a Regulation on Credit Rating Agencies or to the proposal 
for a review of Directives 2006/48/EC and 2006/49/EC under the co-
decision procedure.   
 
Further to the European Parliament's opposition, the Commission has 
decided to launch a new Comitology procedure on a new text which 
takes into account the requests expressed by the European Parliament 
in its resolution.  
 
On 20th February 2009, the Commission submitted a revised draft 
Commission Directive amending Directive 2006/48/EC for opinion to 
the EBC. This new text is identical to the text approved by the EBC on 
24 September 2008, except for the provision in Point 3 of the draft 
directive, laying down the disclosure requirements for the ECAIs, which 
has been removed. 
  
If the new draft is approved by the EBC, the Commission will re-submit 
the new draft measure to the European Parliament and Council for their 
scrutiny in accordance with Decision 1999/468.   
 
The substance of the ECAIs provision has been taken up into an 
amendment1 proposed by J.P. Gauzès, MEP to the pending co-decision 
proposal for a review of the CRD.  This amendment is now part of the 
package of amendments proposed by the Parliament and currently 
under the Commission's examination that will be discussed in the 
pending negotiations.  
 



−  Comitology Amendments to Directive 2006/49/EC 
 
The European Parliament's scrutiny period expired on 9 January 2009 
and the EP has not made any comment on this draft measure.  
 
Therefore the adoption of this draft Commission Directive can proceed 
according to plan. A written procedure for the adoption of this Directive 
by the Commission will be launched shortly.  
 

Capital Requirements Directive: considering 
further changes 
 
It is already apparent, as the process to amend the CRD which was 
initiated last October draws to a successful conclusion, further changes 
to the CRD will be necessary.  
 
The EBC has been remained attentive to the evolving need for such 
changes and held further discussions at its March meeting. In 
particular, consideration is being given to further changes in the 
context of the trading book, securitisation and national options and 
discretions. It will be important to ensure consistency with ongoing 
discussions in European and international fora - in particular with 
respect to the EBC discussions about supplementary ratios (see below). 
Changes to the trading book and securitisation rules could be built 
around recent proposals by the Basel Committee. Capital requirements 
for the trading book have proved inadequate over the course of the 
past two years and require strengthening. Capital requirements for 
complex securitisations of securitisations also need to be strengthened, 
as these instruments turned out to be particularly sensitive to 
correlated losses. With regard to national options and discretions, work 
by CEBS and further discussions in the CRDTG point the way towards 
substantial progress in this area.  
 
At its meeting, the EBC gave discussed the level of ambition that co-
legislators should seek to achieve when narrowing the options and 
discretions for national implementation. 
 
Regulatory issues: Home/host supervision of 
branches 
 
In light of the financial crisis, the EBC discussed the robustness of 
home/host arrangements for the supervision of credit institution with 
branches established in another Member State. The Commission 
provided an explanation of the existing CRD requirements regarding 
information sharing and powers of intervention for host supervisors in 
emergency situations.  
 
The Commission will perform a transposition check of those provisions 
to ensure that host authorities are able to exercise the powers currently 
provided for in the CRD, and that host Member States have sufficient 
confidence in the robustness of the existing arrangements. In the 
context of the forthcoming White Paper on early intervention, it is 
intended to further reflect on the need to entrust authorities with 
further powers to act at an earlier stage – before emergency situations 
arise.   
 
 



 
Regulatory issues: working towards a 
Commission report on Procyclicality by end 
2009 
The Basel II framework (transposed by the Capital Requirement 
Directive) aims to enhance financial stability by making capital 
requirements more risk sensitive. As a consequence, capital 
requirements are broadly expected to vary over time – in line with the 
economic cycle. The current crisis has prompted questions as to 
whether and to what extent the variation in regulatory capital 
exacerbates the economic cycle – or, in other words, whether the new 
requirements produce "Pro-cyclical" effects. CEBS and the BSC have set 
up a joint task force to pull together empirical analysis and look at long 
term observation periods.  
 
While there is a clear urgency to devise regulatory responses to 
improve the financial regulatory framework in order to re-establish 
confidence, this work is not expected to lead to measures which 
provide a solution paving the way out of the current crisis. Over the 
course of this crisis, many banks have remained well above the 
regulatory minimum capital requirements even though they had to be 
re-capitalised by governments because of market fears that their 
capital was not adequate. In the depths of a crisis it is in any case too 
late to apply counter-procyclical measures, as any such measures 
would require banks to build up buffers or provisions during the good 
times and would not be appropriate at this juncture.  
 
At this stage, there may be various ways to mitigate the pro-cyclicality 
of regulatory capital. Examples include: strengthening the through-the-
cycle orientation of minimum capital requirements;  basing minimum 
capital requirements on smoothed outputs of financial institutions' 
internal risk models; adding a countercyclical "macro-prudential 
overlay" to the minimum requirements based on measures on the 
financial cycle. Adjustments could be based on mandatory rules, or else 
on a more discretionary basis. They could be hardwired to the minima 
(pillar 1) or encouraged by the supervisory process (pillar 2). 
Depending on their specific features, the arrangements would impact 
differently. 
 
The current crisis has also prompted a discussion about the relationship 
between prudential and accounting rules. The European Council has 
called for a speeding up of work on the international regulation of 
capital and for a general consideration of the effects of fair value 
accounting rules on financial institutions and markets, including their 
procyclical effects. A special working group set up by the EFC to look at 
Procyclicality has been paying special attention to the concept of 
"dynamic provisioning", and to how strong provisioning and flexible 
counter-cyclical buffers could be achieved, both within the prudential 
framework and by way of financial reporting.  The Working Group 
believes that these issues deserve an in-depth discussion within the 
international organisations concerned, mainly the Basel Committee and 
the IASB. 
 
The ongoing work on pro-cyclicality will feed into the Commission's first 
biennial report to the Council and the EP on pro-cyclicality (under Art 
156 of the CRD), which is due to be to be delivered by end 2009.  
 
 



 
Regulatory issues: considering a new 
supplementary metric in banking regulation 
 
One of the lessons drawn from the current crisis is that size and 
leverage of financial firms might be better captured. The European 
Commission has clearly expressed its view - in the G-20 and in the G-
10 Basel Committee, that a new and simple metric should be designed 
to supplement the present risk-based capital requirements in the 
Capital Requirements Directive (CRD). This work is part of the 
programme of measures that are underway to improve the entire 
capital framework (trading book, securitisation, liquidity, etc). 
The possible introduction of any supplementary metric will need to be 
properly assessed with respect at least to the three important policy 
issues: (i) its objectives; (ii) its design and calibration; (iii) its role in 
supervision and crisis management. 
 
The European Banking Committee is in the process of conducting an 
overview of the key policy issues at stake and possible options that 
could be explored for a new metric.  
 
Deposit Guarantee Schemes: Commission 
considers next steps following the approval 
of a new Directive  
 
−  Proposal amending Directive 94/19/EC:  
The European Parliament and Council have now approved the 
Commission's  proposal of October 2008 to amend the Directive on 
Deposit Guarantee Schemes. The main changes will be:  
•  An increase of the minimum coverage level from €20 000 to € 
50 000 by end of June 2009 (co-insurance to be abandoned) 
•  A further increase to a fixed level of €100 000 by end 2010 
unless the Commission concludes that this would be 
inappropriate 
•  A reduction of the time taken to payout to depositors from 3-9 
months to 4-6 weeks by end 2010. 
The Commission will also be required to prepare a report by end 2009 
on a variety of issues (in addition to the increase to €100 000), such as 
the harmonisation of funding mechanisms, operational issues (such as 
the payout delay), and the feasibility of a pan-EU Scheme, and to 
submit legislative proposals if appropriate (see below). The text of 
Directive 2009/14/EC was published in the Official Journal on 13 March 
2009. 
−  Commission Report on Deposit Guarantee Schemes 
 
The Commission's report will address the following issues: 
 
•  Harmonisation of the funding mechanisms of deposit-
guarantee schemes and the benefits and costs of such 
harmonisation; 
•  Possible models for introducing risk-based contributions; 
•  Benefits and costs of a possible introduction of a Community 
deposit-guarantee scheme;



•  The appropriateness of and modalities for providing a full 
coverage for certain temporarily increased account balances; 
•  Effectiveness and delays of the payout procedures assessing 
whether further reduction could be implemented; 
•  The link between deposit guarantee schemes and alternative 
means for reimbursing depositors, such as emergency pay out 
mechanisms; 
•  The harmonisation of the scope of products and depositors 
covered, including the specific needs of SMEs and local 
authorities; 
•  The impact of diverging legislations as regards set-off, where a 
depositor’s credit is balanced against its debts, on the 
efficiency of the system and possible distortions, taking into 
account cross-border winding-up; 
•  Transparency and information available to depositors (i.e. 
their awareness about the functioning and the features of 
existing schemes);  
•  The effectiveness of cross-border cooperation between deposit 
guarantee schemes. 
In order to help prepare this report, the Commission will be supported 
by its Joint Research Centre, which has been tasked with obtaining (via 
a detailed questionnaire which has been sent to national schemes) 
information and preparing input on specific questions. 
A public consultation on these issues will be launched in spring 2009. 
Additional input will be sought via an expert Working Group which will 
first meet in July to discuss specific issues with Member States. 
 
Early Intervention: Commission prepares a 
White Paper 
 
Recent events have provided clear evidence that in cross-border crisis 
situations the defence of national interests prevails over cooperative 
solutions - despite the putting in place in 2008 of an EU-wide 
Memorandum of Understanding setting out arrangements for 
cooperation during a crisis. The importance of introducing effective 
crisis management arrangements and ensuring their interoperability 
across borders has been recognised both in the de Larosière report and 
in the Commission's response. 
 
The Commission has established an expert working group which is 
helping in the preparation of a White Paper due by June 2009. The 
White Paper will look at developing an overall EU framework for crisis 
intervention to deal swiftly and effectively with an ailing bank.  
 
The White Paper will need to consider ways of overcoming national 
instincts and encouraging win-win cooperative solutions, and will in 
particular need to consider how to address the current misaligned 
incentives which impede effective cooperation across borders.  
 
In particular, a new framework will need to deliver in a number of 
important areas: 
−  empowering authorities to allow asset transferability (and provide 
alternative solutions to ring fencing) and create cooperative 
financing possibilities. 
 



−  addressing the need for a common approach to pre-intervention, by 
proposing the development of a common assessment system, 
enhancement of equivalent and compatible supervisory tools, and 
empowering supervisors to allow asset transferability subject to 
certain conditions. 
−  seeking to develop a common approach to intervention, by ensuring 
that certain reorganization powers (e.g. bridge banks, partial 
transfers of banking business, good bank/bad bank, appointment of 
special administrator,..) are available options in all MS (this may 
need to entail special rules for dealing with systemic powers which 
provide derogations from e.g. company law, etc). Such enhanced 
powers which might impact the rights of certain stakeholders 
(shareholders, creditors) would need to be offset with appropriate 
safeguards. 
−  addressing coordination between authorities – in particular through 
the enhancement of the 2008 MoU with legal obligations on alert and 
consultation between authorities both domestically and cross-border. 
−  proposing the development of financing arrangements to underpin 
cross-border cooperation, by for example converging rules on 
funding of deposit guarantee schemes and developing their proactive 
use beyond the paybox function.  

Document Outline