The European Commission last week adopted a package of Regulatory Technical Standards (RTS) affecting bank capital standards, which are part of the larger Capital Requirements Regulation and Directive.

The nine RTS, which were developed by the European Banking Authority, are part of the effort to create and implement a single rule book for banking throughout the European Union. The RTS relate to how competent authorities and market participants handle disclosures related to securitization instruments, measure potential losses stemming from derivatives and counterparty failure, and what financial instruments may be used to pay bonuses. The standards will contribute to a stricter regulatory environment for banks and other financial firms, the commission said.

The Capital Requirements Directive took effect in January.

Internal Market and Services Commissioner Michel Barnier said creating a single rule book in banking is “a vast undertaking” which would create a level playing field for banks throughout the bloc.

“The adoption of the Capital Requirements package created a framework,” Barnier said in a statement. “But to reap the full benefit of the single rule book, many aspects must be further developed technical standards, delegated and implementing acts. What we are delivering today is a decisive step in that direction thanks to excellent cooperation between the European Banking Authority and the European Commission.”

The specific standards adopted related to:

·         Determining proxy spread and limited smaller portfolios for credit valuation adjustment risk

·         New requirements for investor, sponsor, original lenders and originator institutions related to exposures to transferred credit risk

·         Classes of instruments that sufficiently reflect the credit quality of an institution as a going concern and that may be used for variable remuneration

·         How institutions should assess the materiality of extensions and changes of the Internal Ratings Based Approach and Advanced Measurement Approach

·         Specifics on what information the competent authorities of home and host Member States must supply to one another regarding investment firms and credit institutions

·          Definition of the term “market” for use for purposes of market risk calculation

·         Provisions for three alternative approaches for institutions to calculate the “non-delta risks” of options in the standardized market risk approach

·         Further definition of material exposures and thresholds for internal approaches to risk in the trading book

·         Specifics on what qualifies as close correspondence between the value of an institution's covered bonds and the value of its assets

Following a one to three-month objection period, the standards will be published in the Official Journal of the European Union. The standards will enter into force 20 days following publication. Member States do not need to pass implementing legislation.

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