EC reacts to the financial crisis with a proposal for a Directive of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (COM(2008) 602 final). The Commission believes that inter-bank exposures are not risk-free and should be prudently managed. The Commission proposes to limit all inter-bank exposures to 25% of own funds or an alternative threshold of EUR 150 million, whichever is higher. Over 60 different policy options have been assessed in order to make this proposal.

Context of the proposal

A single financial market in the EU is a key factor in promoting the competitiveness of the European economy and the lowering of the capital cost to companies. The Financial Services Action Plan 1999-2005 (FSAP) aimed at laying the foundations for a strong financial market in the EU by pursuing three strategic objectives:

• Ensuring a Single Market for wholesale financial services.
• Open and secure retail markets.
• State-of-the-art prudential rules and supervision.

In this context, based on the 'Basel II' G-10 agreement, a new capital requirements framework was adopted in June 2006 as the Capital Requirements Directive (CRD); this comprises Directives 2006/48/EC and 2006/49/EC. The overarching goal of the current proposal is to ensure that the effectiveness of the Capital Requirements Directive is not compromised. The revision relates to:

• Revisions of rules that were brought forward from previous directives, such as the large exposures regime and derogations for bank networks from prudential requirements.
• Establishing principles and rules that had not been formalised at the EU level such as the treatment of hybrid capital instruments within original own funds.
• Clarifying the supervisory framework for crisis management and establishing colleges for enhancing both efficiency and effectiveness of supervision.

The revision of certain other areas has been prompted by the financial market turbulence that started in 2007 and is aimed at ensuring adequate protection of creditor interests and overall financial stability.