COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal amending: -Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms; - Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms; - Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms; - Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund
Date: 2016-11-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: banking supervision, company in difficulties, credit institution, economic stabilisation, financial aid, financial intervention, financial services, financial solvency, investment company, monetary crisis

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   EN 

   EUROPEAN COMMISSION  Brussels, 24.11.2016  SWD(2016) 378 final/2   CORRIGENDUM This document replaces SWD(2016) 378 of 23.11.2016 Concerns only the English version (insertion of cross-references) COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal amending: -Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms; - Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms; - Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms; - Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund {COM(2016) 850 final} {COM(2016) 851 final} {COM(2016) 852 final} {COM(2016) 853 final} {COM(2016) 854 final} {SWD(2016) 377 final}  
 
 
Executive Summary Sheet 

Impact  assessment  on  proposals  amending  Regulation  (EU)  575/2013  on  prudential  requirements  for  credit 
institutions  and  investment  firms,  Directive  2013/36/EU  on  access  to  the  activity  of  credit  institutions  and  the 
prudential supervision of credit institutions and investment firms, Directive 2014/59/EU establishing a framework 
for the recovery and resolution of credit institutions and investment firms, Regulation (EU) No 806/2014 of the 
European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for 
the  resolution  of  credit  institutions  and  certain  investment  firms  in  the  framework  of  a  Single  Resolution 
Mechanism and a Single Resolution Fund   

A. Need for action 

Why? What is the problem being addressed? Maximum 11 lines 
In the interests of financial stability and the Commissions jobs and growth agenda, there is a pressing need to; 
address  a  number  of  shortcomings  in  the  existing  regulatory  framework;  to  implement  a  series  of  post  crisis 
International  measures;  and  to  urgently  complete  the  banking  union  initiatives.    More  specifically,  at  present 
there are significant risks to financial stability and a worrying lack of sustainable bank financing of the economy. 
In addition, more needs to be done to ensure that the taxpayer does not have to bear the burden of the failure of 
a  'too-big-to-fail'  institution  in  the  future.  Moreover  it  is  also  essential  to  try  and  reduce,  where  possible,  the 
disproportionate regulatory and compliance burdens.  

These issues can be attributed, in part to the following factors:  

  A risk of excessive reliance on short-term wholesale funding to finance long-term activities;  
  A risk of excessive leverage of institutions; 
  Suboptimal Capital charges for SME exposures ; 
  A risk of disorderly failure of systemically important institutions; 
  Possible failures resulting from inadequate capital requirements for institutions; and 
 

Insufficient  harmonisation  of  certain  resolution  provisions  (for  example  those  concerning  insolvency 
ranking and moratorium)  

What is this initiative expected to achieve? Maximum 8 lines 
The initiative aims to, in the first instance, address the issues already highlighted above. In so doing it will also; 
enhance  'risk-capture'  and.  risk-sensitivity  within  the  prudential  framework';  improve  the  capacity  of  loss-
absorption and recapitalisation of G-SIBs; and increase proportionality. In addition we envisage that the initiative 
will reduce administrative burdens, compliance costs' and the possibilities of risk arbitrage while enhancing the 
level playing field and ensuing greater legal certainty and coherency,  

What is the value added of action at the EU level? Maximum 7 lines  
EU action is necessary since the prudential requirements for institutions are already dealt with at EU level. As 
such an amendment of the CRR, CRD and BRRD legal instruments is considered to be the best alternative (see 
Article 114 TFEU for the CRR and BRRD and Article 53(1) TFEU for the CRD for the legal basis). Further action 
at EU level would promote a uniform application of the regulatory standards and the convergence of supervisory 
practices.  It  would  also  ensure  a  level  playing  field  throughout  the  EU,  which  is  important  as  banks  –  even 
though  differing  in  geographical  scope  –  operate  in  markets  with  a  broader  geographic  scope  and  are  free  to 
provide services  and  establish  in other  Member  States.  Nevertheless,  Member  States  and  national competent 
authorities  would  retain  existing  powers  to  address  specific  national  economic  and  financial  features  (macro-
prudential policies and systemic risk buffers). 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why? Maximum 14 lines  

Both  legislative  and  non-legislative  options  were  considered  for  all  aspects  of  the  proposals.  However,  in  the 
interest  of  legal  certainty  and  to  be  conducive  for  ensuring  an  EU  and  Global  level  playing  field,  it  will  be 
necessary, particularly for the implementation of the International standards adopted by the Basel Committee on 
Banking  Supervision  (BCBS)  or  the  Financial  Stability  Board  (FSB),  to  implement  these  as  legislative  policy 
options. 

Similarly, the recalibration of the capital requirements for exposures to SMEs which supports the Commission's 
objective of growth and jobs, could be achieved only by making amendments to the CRR.  

Moreover,  with  regards  to  the  proportionality  objective,  changes  to  the  legal  text  would  be  imperative..  These 
include  either  removing  some  obligations  from  the  existing  legislation  (e.g.  reducing  some  disclosure 
requirements  for  less  significant  institutions,  waiving  some  remuneration  requirements  for  smaller  and  less 
complex institutions), or not introducing legal requirements for some institutions (e.g. limiting TLAC requirement 

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only  to  global  systemically  important  institutions  (G-SII),  or  excluding  public  development  banks  from  the 
leverage ratio requirement). 

In addition, there is a need to address the lack of harmonisation under the resolution provisions and this can only 
be  achieved by  introducing  options  that  facilitate  greater  coherence  in  the  application  of  moratorium  tools  and 
elaborating on the insolvency ranking of institutions' creditors . 

Who supports which option? Maximum 7 lines  
In  a  vast  majority  of  proposals  addressed  in  the  Impact  Assessment,  institutions  would  typically  argue  for    a 
reduction in prudential requirements, while supervisors would defend the more prudent approach reflected in the 
standards  delivered  by  the  BCBS.  Businesses,  particularly  SMEs,  would  advocate  for  extensions  on  capital 
reductions for exposures to SMEs. 

However, both the industry and supervisors almost unanimously support clarifying the application of the principle 
of proportionality in relation to remuneration. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)? Maximum 12 lines                                       
Implementing the different preferred options would ensure that EU institutions would i) be better capitalised, ii) 
have  more  stable  sources  of  funding,  iii)  not  have  excessively  leveraged  balance  sheets  and,  iv)  be  resolved 
more effectively. They would thus be better positioned to withstand economic shocks. This would in turn reduce 
the risk of their failure and thus reduce the probability that they would need to be bailed-out by the public sector. 
In  the  event  that  an  institution  (in  particular  a  G-SII)  would  fail,  the  introduction  of  the  targeted  measures  for 
strengthening the resolution process should ensure that the institution would be resolved with minimal impact on 
taxpayers. 

Furthermore,  the  additional  measures  to  increase  the  proportionality  of  some  of  the  requirements  (related  to 
reporting,  disclosure  and  remuneration)  should  decrease  the  administrative  and  compliance  burden  for 
smaller/less complex institutions. In addition, the measures considered in the context of bank resolution should 
provide legal clarity and will thus provide more certainty for resolution authorities and institutions, as well as to 
increase the confidence of investors.  

What are the costs of the preferred option (if any, otherwise main ones)? Maximum 12 lines                                       
To the extent that an institution currently does not have sufficient own funds to meet the new (or revised) own 
funds  requirements  contained  in  the  proposal,  it  would  have  to  either  raise  additional  own  funds  or  reduce  its 
exposures.  Similarly,  if  an  institution  currently  does  not  have  sufficient  amounts  of  stable  funding  to  meet  the 
stable funding requirement it would need to raise additional stable funding or change the maturity structure of its 
assets. Also, changes in the requirements would also lead to one-off costs due to changes to reporting systems. 
However,  for  smaller  institutions,  the  lower  recurring  reporting  costs  due  to  the  simplifications  to  the  reporting 
and disclosure requirements should result in a net benefit to these firms.  

The abovementioned costs would mostly materialise in the short term and are expected to be outweighed by the 
long term benefits of a more stable financial sector. 

How will businesses, SMEs and micro-enterprises be affected? Maximum 8 lines 

The  proposed  recalibration  of  the  capital  requirements  for  bank  exposures  to  SMEs  is  expected  to  have  a 
positive  effect  on  bank  financing  of  SMEs.  This  would  primarily  assist  those  SMEs,  which  currently  have 
exposures beyond €1.5 million as these exposures do not currently benefit from the SME supporting factor. 
Other proposed options in the Impact Assessment, particularly those aimed at improving the resilience of banks 
to future crises, are expected to increase sustainability for lending to SMEs.  
Finally,  measures  aimed  at  reducing  compliance  costs  for  institutions,  particular  the  smaller  and  less  complex 
ones are expected to reduce borrowing costs for SMEs. 

Will there be significant impacts on national budgets and administrations? Maximum 4 lines 
No 

Will there be other significant impacts? Max 6 lines  
No other significant impacts are envisaged.  

D. Follow up 

When will the policy be reviewed? Maximum 4 lines  
The evaluation of the impact of this package will be conducted five years after the legislation enters into force 
which is consisitant with the  methodology agreed before launching the evaluation. 

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