The European Union said on Thursday it had given final approval to roll out the remaining batch of tougher bank capital rules from January 2025, building on safeguards introduced after taxpayers had to bail out lenders in the global financial crisis over a decade ago.
The bulk of the Basel III rules, written by the Basel Committee of banking regulators from the world’s major economies, has already been implemented, but the final batch includes a major addition known as an ‘output floor’.
This safeguard aims to stop big banks, who can use their own computer models to calculate capital buffers, from gaming the system at the expense of smaller rivals, who must use more conservative calculation methods set out by regulators.
“The rules adopted today will ensure that European banks can continue to operate in the face of economic shocks,” Vincent Van Peteghem, minister for finance for Belgium, which holds the EU presidency, said in a statement.
“They will also make the banking sector more sustainable and better able to deal with the green and digital transitions. This is an important step towards deepening the Banking Union.”
The bloc has included other rules, not part of the Basel norms, to harmonise the minimum requirements across the 27-country bloc for authorising branches of banks that are headquartered outside the EU.
The package also includes transitional capital requirements for banks’ holdings of crypto assets, and changes to enhance how lenders manage environmental, social and governance (ESG) risks.
EU states said the rules would start to be rolled out from January 2025, though European Central Bank policymaker Francois Villeroy de Galhau on Wednesday said they should be delayed if the United States is late, to avoid a competitive disadvantage for European banks.
The Federal Reserve has proposed applying the final Basel rules from mid-2025, the same time as Britain, but huge U.S. industry pushback against the Fed’s “Basel Endgame” package has cast doubt on timings.