News

On a micro prudential level, CRD IV/CRR will help enhance individual banks’ resilience. However, the position paper argues that the reform does not do enough on the macro level to address systemic risk and moral hazard. Finance Watch argues that CRD IV/CRR could better implement Basel III and prevent further financial crisis by:





1. Increasing Total Capital requirements to 15% of RWA, Tier 1 capital to 10% of RWA and common equity Tier 1 to 7.5% of RWA which, including the capital conservation buffer, translate respectively into 17.5%, 12.5% and 10% of RWA. It must be noted that Tier 1 is the most useful aggregate in our view and that our recommendations are calibrated under a maximum harmonisation assumption.



2. Increasing the leverage ratio to a flexible cap of 5%-3% under IFRS, and include it in pillar 1 from 2015.



3. Removing all zero risk weights, replace the flat risk weight for non-rated corporate exposures under the standardised approach by country averages of IRB risk weights for non-rated corporate exposures, and lower the risk weight for retail exposures.



4. In order to curb excessive risk transfer, we propose the introduction of a residual risk weight requirement for transferred exposures of 25% of the original risk weight.



5. Benchmarking banks’ internal models against a standard portfolio.



6. Introducing the mandatory disclosure of the return on assets of credit institutions in the key indicators as even though it is already available, it would increase the focus on this measure.



Finance Watch urges a comprehensive reform, in combination with efforts under the Financial Stability Board on Systemic Risk and the initiative of the High Level Expert Group on reforming the structure of the EU banking sector.



Position paper is attached.