The European Commission has requested Greece, Italy, Poland, Portugal, Slovenia and Spain to apply the Third Capital Requirements Directive or CRD III and notify measures within two months to implement important rules concerning the capital adequacy and the remuneration policies of financial institutions.

The Third Capital Requirements Directive or CRD III aims to ensure the financial soundness of banks and investment firms and to address excessive and imprudent risk-taking in the banking sector promoted by improperly designed remuneration practices which led to the failure of individual institutions and problems to the society as a whole. Timely and correct implementation of the Directive is necessary to address these concerns. If the national authorities do not notify the necessary implementing measures within two months, the Commission may refer the Member States concerned to the Court of Justice.

The Directive in question amends the Capital Requirements Directives (2006/48/EC and 2006/49/EC) and the main changes introduced by the new Directive are as follows:

• Remuneration policies and practices within banks. The Directive tackles perverse pay incentives by requiring banks and investment firms to have sound remuneration policies that do not encourage or reward excessive risk-taking. Banking supervisors have the power to sanction banks with remuneration policies that do not comply with the new requirements. The Directive does not however introduce salary or bonus caps.
• Capital requirements for re-securitisations. Re-securitisations are complex financial products that have played a role in the development of the recent financial crisis. In certain circumstances, banks that hold them can be exposed to considerable losses. The Directive imposes higher capital requirements for re-securitisations, to make sure that banks take proper account of the risks of investing in such complex financial products.
• Disclosure of securitisation exposures. Proper disclosure of the level of risks to which banks are exposed is necessary for market confidence. The new rules tighten up disclosure requirements to increase the market confidence that is necessary to encourage banks to start lending to each other again.
• Capital requirements for the trading book. The trading book consists of all the financial instruments that a bank holds with the intention of re-selling them in the short term, or in order to hedge other instruments in the trading book. The Directive changes the way that banks assess the risks connected with their trading books to ensure that they fully reflect the potential losses from adverse market movements in the kind of stressed conditions that have been experienced recently.

The deadline for implementing the rules in question was 1 January 2011. While the majority of Member States have fully implemented the Directive, Belgium, Greece, Italy, Luxembourg, Poland, Portugal, Slovenia, Slovakia, Spain and Sweden still have to implement some or all of its provisions. In four Member States, Belgium, Luxembourg, Sweden and Slovakia additional or secondary legislation is still required in order to implement a number of provisions, mainly related to the pre-existing minimum capital requirements and the remuneration provisions.