The European Parliament and Council of Europe have agreed two deals that will strengthen the EU’s economic and monetary union.
The first deal aims to amend the EU’s prudential requirements by increasing lending capacity and providing deeper capital markets. MEPs inserted language into the deal which clarified the definition of small banking institutions, in order to ensure banks are treated with proportional fairness. In order to reinforce the power of the economic and monetary union, banks will be subject to stricter rules regarding liquidity and leverage.
The second deal lays out strategies for banks to deal with losses, incorporating international standards on recapitalisation and loss absorption; while keeping an active role in financing growth. The terms of the deal ensure banks should not need to rely on taxpayer bailouts in the event of a major loss, instead retaining the requisite capital and debt to get them out of difficulty. Banks in the economic and monetary union which are determined to be failing or likely to fail will risk having their payments suspended and may eventually be “wound up in an orderly manner” if it is not considered in the public interest to save them.
Roberto Gualtieri, chair of the European Economic and Monetary Affairs Committee, said: “The European Parliament has contributed significantly to delivering a comprehensive and balanced package which reduces risks in the EU banking sector and protects taxpayers, while providing the necessary incentives to sound lending to the real economy and to the reduction of NPLs [non-performing loans]. We now call on the next European Council to take the necessary steps and to be sufficiently ambitious on completing the Banking Union and deepening the economic and monetary union. I would also like to thank the Austrian Presidency for the excellent cooperation.”
The European Parliament’s plenary session will formally vote on the economic and monetary union deals early next year.