European Commission Proposes Measures to Increase Banks’ Resilience, Lending Capacity

The European Commission on Wednesday laid out plans for reforms of regulations that would strengthen the resilience of European Union financial institutions, enhance financial stability and improve the banks’ lending capacity to support the EU economy.

The Commission said that while it has already overhauled its rules for financials services, more “targeted measures” are needed to reduce the risks associated with banking and to enhance the ability of institutions to channel adequate funding to the economy.

Among others, it is calling for a binding 3% leverage ratio that will prevent banks from excessive lending when the don’t have enough capital; and for the biggest banks will have to hold sufficient assets they can draw on quickly in the case of financial distress.

The proposals would amend the EU’s Capital Requirements Regulation and Capital Requirements Directive, both of which were adopted in 2013. They would also amend the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation that were adopted in 2014 and that spell out the rules on the recovery and resolution of failing institutions.

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