What changed between the draft committee report and the plenary report

Added:P. whereas the Banking Union should help to address the bank-sovereign nexus or doom loop, which continues to exist; whereas the level of sovereign exposure has been growing in a number of banks; whereas the prudential treatment of sovereign debt should be consistent with international standards;

Added:Q. whereas interest rate hikes have had a negative impact on the borrowing capacity of households and the capacity of borrowers to repay debt and make EU banks vulnerable to potential losses in the future; whereas risks stemming from interest rate hikes have been so far properly addressed;

Added:R whereas the completion of the Capital Markets Union (CMU) requires the establishment of common rules and effective tools to reduce internal market fragmentation and facilitate access to alternative financing;

Added:S. whereas the EU and the UK have signed a Memorandum of Understanding on Financial Services Regulatory Cooperation, and this cooperative approach should underpin long-term EU-UK relations particularly in the area of banking; whereas the Commission has again extended its temporary permit allowing EU banks and fund managers to use UK clearing houses;

General considerations

Change 5

Changed:1. Condemns the Russian aggression against Ukraine and its impact on the Ukrainian people, on the EU and elsewhere; calls on banks to continue reducingadapting their exposurestrategic decisions to energythe intensivenew corporates;European and international context resulting from this circumstance, to address systemic risk, and to continue implementing and complying with the financial sanctions adopted in response to Russia’s invasion of Ukraine;

Change 6

Changed:2. Recalls thatthat, while Member States are responsible for identifying breaches of EU sanctions, the banking sector plays a key role in the implementation of sanctions and in monitoring compliance; calls on the Commission to create a database at EU level to foster coordination among banks, close loopholes in Member States’ implementation of sanctions and assess how EU banks implement sanctions; takes note of Parliament’s position on the anti-money laundering authority regulation (AMLA) proposal, which tasks the new Authority with supporting a consistent application of the EU targeted financial sanctions;

Change 7

Changed:3. CallsNotes that total direct banking sector exposures to Russia and Ukraine are limited as banks are currently reducing their exposures, and calls on supervisory institutions and the ECB Banking Supervision to assisthelp the remaining EU banks operating in Russia into preparingmake an orderly exit from the Russian market;

Change 8

Removed:4. Asks the Commission to retain the completion of the BU and the Capital Markets Union as key priorities for its next mandate; highlights that both projects offer households and SMEs access to broader funding, increase financial stability, reduce the impact of economic downturns, fund the transition to a green and digital economy and unlock the EU’s growth potential;

Added:4. Highlights that the Banking Union remains an essential complement to the Economic and Monetary Union (EMU) and therefore the internal market; recalls that key goals of the Banking Union are the security of the banking system, depositor protection and the prevention of bank bailouts by taxpayers; acknowledges the progress made over the last 15 years through the establishment of the Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), and that EU banks are now in a better position to withstand financial shocks; calls for the completion of the Banking Union, and notes that its third pillar, EDIS, is still pending;

Removed:5. Warns that recent increases in the profitability of EU banks are not enough to ensure their competitiveness; highlights that fragmentation limits banks’ ability to undertake strategic investments;

Added:5. Asks the Commission to retain the completion of the Banking Union and the Capital Markets Union as key priorities for the remainder of its current mandate and for its next mandate; highlights that both projects: – offer households and SMEs, which are still largely reliant on bank credit, broader access to funding, – foster investments and job creation, – support the European economy – increase financial stability – reduce the impact of economic downturns – fund the digital transition and the transition to a sustainable economy, and – unlock the EU’s growth potential;

Removed:6. Calls for consolidation in the EU to be promoted by removing regulatory impediments to cross-border mergers; highlights that consolidation would increase the profitability of the EU banking sector and financial stability;

Added:6. Takes note of the EBA’s statement of 13 July 2023 stating that the EU/EEA banking sector shows rising profitability, but asset quality and profitability related risks are looming; takes note of recent short-term increases in the profitability of EU banks (annualised return on equity rose to 10.04 % in the second quarter of 2023, while in the same period of 2022 it was 7.59 %, reaching its highest level in 14 years), but warns that these need to be sustainable to ensure long-term competitiveness;

Removed:7. Highlights that the banking sector should be key in delivering the transition to a digitalised and carbon neutral economy and in channelling funds to renewable energies;

Added:7. Encourages the use of profits to build buffers, thus safeguarding the stability of the financial system, and to finance the European economy; notes that the temporary suspension of dividend distribution and share buy-backs was effective in safeguarding banks’ resilience during the COVID-19 crisis;

Removed:8. Regrets the lack of gender balance in the ECB Governing Council, its Supervisory Board and the SRB Board; calls on them to ensure that future appointments close the gap;

Added:8. Notes that the Q2 Euro Area Bank Lending Survey of 2023 showed that banks further tightened their credit standards for loans to firms and households for house purchases due to higher risk perceptions, lower risk tolerance and increased funding costs, and that banks also tightened lending conditions amid higher levels of concern about non-performing loans; recalls the key role of the EU banking sector in financing the recovery of the EU economy and considers that the recovery will also depend on banks having sufficient capital to provide credit, particularly as public support measures in Member States are gradually removed;

Added:9. Calls on the Commission to assess impediments to cross-border mergers as well as potential incentives for ring fencing; takes note that, according to a public statement by Andrea Enria, Chair of the ECB Supervisory Board, the banking sector is still, by and large, a collection of national banking sectors; notes that a more integrated EU banking sector could enhance banks’ ability to undertake strategic investments and foster the development of EU capital markets, while acknowledging that the diversity of banking business models in the euro area enhances the resilience of the financial system; notes the risks that ‘too big to fail’ institutions could entail, and notes that financial stability could be increased by a reform of EU G-SIBs that addresses moral hazard risks highlights that cross-border consolidation without excessive concentration could increase the profitability of the EU banking sector, and potentially improve the current situation of reduced services offered and increased costs for citizens in many Member States;

Added:10. Notes that retail banking services in certain Member States remain dominated by a small number of banks and the consequential reduction of consumer choice for retail banking customers; considers that an integrated Banking Union must be contingent on a well-functioning single market for retail financial services; regrets the remaining barriers to cross-border retail banking services and calls on the Commission to assess the obstacles and barriers that arise for consumers when availing themselves of retail banking products; emphasises the potential for an integrated Banking Union to improve competition and consumer choice in the area of retail banking, including through improved opportunities for the provision of cross-border retail banking services; stresses the benefits of a diversified and competitive banking sector in the EU;

Added:11. Highlights that the interest rates offered to households and SMEs across the Member States are highly disparate; urges the EU institutions and bodies to consider measures to improve consumer choice and competition and ease the burden on mortgage holders and SMEs in Member States with higher lending rates to ensure that all citizens and businesses can access much-needed capital at fair and competitive rates;

Added:12. Highlights the role of the banking sector in supporting the transition to a digitalised and carbon neutral economy, in channelling funds to renewable energy sources and in supporting the achievement of the objectives of the EU Green Deal and the EU Climate Law; takes note of EU banks continuing to reduce their exposure to energy intensive and fossil fuel corporates, and takes note of the various factors impacting financial stability, including fossil fuel asset values; awaits the publication of the EBA reports on the crucial issues of the riskiness of institutions’ exposures to ESG assets and the potential effects of an adjusted prudential treatment of these exposures, to be published by the end of 2024 and 2025;

Added:13. Regrets the failure of financial institutions to ensure gender-balance, especially in their management bodies; stresses that gender balance on boards and in the workforce brings both societal and economic returns; calls on financial institutions to regularly update their diversity and inclusion policies and to help foster healthy working cultures which prioritise inclusivity; calls on supervisory authorities to make use of their supervisory powers to address the lack of diversity and gender-balance in the management bodies of financial institutions;

Added:14. Regrets the lack of gender balance in the ECB Governing Council, its Supervisory Board and the SRB Board; calls on actors to ensure that future appointments close the gap; recalls Parliament’s resolution of 14 March 2019 aiming to secure gender balance in the forthcoming list of candidates for EU economic and monetary affairs nominations and reiterates its commitment not to take into account lists of candidates where the gender balance principle has not been respected;

Added:15. Regrets that, as part of the selection procedure for the Chair of the ECB Supervisory Board, the ECB disregarded the feedback from Parliament; urges the ECB to duly take into account Parliament’s opinion in the upcoming selection procedures;

Added:16. Notes that banks’ exposures to domestic sovereign debt remain high in the Banking Union; recalls that one of the main objectives of the Banking Union is to break the link between bank and sovereign risks; emphasises that the issue of regulatory treatment of sovereign exposures requires an in-depth examination within international forums and should be consistent with international standards, and calls on the Commission to take that into account when addressing this issue in any future proposals; shares the EBA’s concern that sovereign exposures are material for EU banks and could become a source of potential vulnerability;

Added:17. Stresses that the creation of an EU safe asset could help to mitigate the negative feedback loops between sovereigns and domestic-banking sectors; considers that NextGenerationEU provides high-quality, low-risk European assets, allowing for a rebalancing of sovereign bonds on banks’ balance sheets;

Supervision

Change 9

Changed:9.18. Notes that the Common Equity Tier 1 ratio increased in the firstsecond quarter of 2023,2023 butto 15.72 % (up from 14.96 % in the second quarter of 2022); regrets that the liquidity coverage ratio fell;fell to 158.00 % in the second quarter of 2023 (down from 164.36 % in the second quarter of 2022);

Change 10

Removed:10. Notes that the NPL ratio decreased further; calls for the adoption of the proposal for a AECE Directive to develop NPL secondary markets;

Added:19. Notes that the NPL ratio decreased further, and calls for a further reduction; recalls that risk reduction in the banking sector would contribute to a more stable, stronger and economic-growth-oriented Banking Union; calls on supervisors to also monitor the development of stage 2 loans; notes the lack of progress on the AECE Directive proposal, which intends to provide banks, under certain conditions, with a mechanism to accelerate the value recovery from secured loans via extrajudicial enforcement of procedures, in order to further develop secondary markets for NPLs; highlights that the Directive on credit servicers and credit purchasers has made the secondary market for NPLs more efficient, while establishing high safeguards for debtors; underlines that the sale of an NPL represents a second best solution compared to returning the credit to performing status;

Removed:11. Highlights that the limited impact of the recent failure of midsized US banks proves the resilience of the EU banking sector; underlines that EU supervisors efficiently addressed risks arising from changes in the interest rate landscape; calls on supervisors to continue assessing exposures to further interest rate hikes;

Added:20. Takes note of a deteriorating macroeconomic situation; points out that EU banks should prepare for a potential deterioration in asset quality; therefore highlights the importance of prudent risk management and appropriate provisioning; invites the Commission as well as national and EU supervisory authorities to prepare for a potential deterioration in asset quality;

Change 11

Changed:12.21. WelcomesNotes that the resultslatest round of thebank 2023failures EU-widein stressthe testUS and Switzerland has shown the factvulnerabilities thatof EUthe banksfinancial couldsystem, withstandparticularly anin economicthose downturn;countries; noteshighlights thatthat, against this backdrop, the exposurecapital and liquidity situation of EU banks has continued to interestremain ratesolid, riskthereby dependsdemonstrating onthe theirresilience assetof structurethe EU banking sector; underlines that EU and businessnational model;supervisors addressed those risks and welcomes the results of the 2023 EU-wide stress test and the fact that EU banks could withstand an economic downturn;

Change 12

Removed:13. Calls for further harmonisation of the EU regulatory framework, promoting convergence between national authorities and using the supervisory dialogue to assess the evolution of threats to the banking sector;

Added:22. Calls on supervisors to continue assessing banks’ exposures to interest rate risks stemming from further changes in interest rate levels; notes that the exposure of banks to interest rate risk depends on their asset structure and business model, and awaits the Commission’s assessment of the regulatory framework for banks; is concerned about the significant level of sovereign debt on the balance sheets of banks in the Banking Union; emphasises that the issue of regulatory treatment of sovereign exposures requires an in-depth examination within international forums and should be consistent with international standards; recalls that one of the main objectives of the Banking Union is to break the link between bank and sovereign risks;

Removed:14. Welcomes the agreement reached at interinstitutional level to implement Basel III standards in the EU; highlights that the framework will not increase prudential requirements for banks or damage their competitiveness; notes that the implementation of the Basel standards to crypto-assets is still pending;

Added:23. Recalls that the ECB’s ‘Financial Stability Review 2023’ emphasises the importance of taking into account the deterioration of bank balance sheets associated with rising interest rates and emphasises that macro-prudential authorities will need to gradually strengthen capital and/or borrower-related measures;

Removed:15. Notes that the non-bank financial intermediary sector is continuing to grow; regrets that different rules for these activities may entail significant risks; calls for an appropriate regulatory approach to shadow banking, for the promotion of fair competition with banks and for the risks stemming from banks’ exposure to these activities to be addressed;

Added:24. Calls for further harmonisation of the EU regulatory framework, where appropriate, promoting convergence between national authorities and using the supervisory dialogue to assess the evolution of threats to the banking sector;

Removed:16. Highlights the importance of combining further integration with credible safeguards addressing the home-host issue;

Added:25. Welcomes the agreement reached at interinstitutional level to implement Basel III standards in the EU; underlines that the framework will deliver different levels of increase in prudential requirements depending on banks’ reliance on the use of internal models to calculate their risk-weights; highlights that the new rules have strengthened and better specified proportionality in banking supervision and will continue to increase financial stability in the EU; underlines the importance of a level playing field between jurisdictions;

Added:26. Takes note of the views expressed by the EBA and the ECB regarding the deviations from the international agreement introduced in the Capital Requirements Regulation;

Added:27. Stresses that crypto-assets create new opportunities and challenges for banks; notes that the implementation of the Basel standards for crypto-assets is still pending; welcomes the transitional regime already included in the current review of the Capital Requirements Directive and the Capital Requirements Regulation; awaits the Commission’s legislative proposal by 30 June 2025 to introduce dedicated prudential treatment for exposures to crypto assets, taking into account the Basel standards;

Added:28. Notes that the non-bank financial intermediary sector is continuing to grow; stresses the need to enhance the resilience of non-bank financial intermediaries and establish a level playing field with the banking sector, including by designing specific regulatory and supervisory tools to prevent a liquidity crisis; welcomes the IMF’s World Financial Stability Report, published in April 2023, which identifies possible sources of risk to the financial sector: warns that the interconnection of non-bank financial institutions (NBFI) with banks increases the risk of transferring difficulties from one to the other;

Added:29. Highlights the importance of combining further integration with adequate safeguards addressing the home-host issue in a proportionate and credible manner;

Added:30. Takes note of the inclusion of climate-and nature-related financial risks in the ECB’s supervisory priorities for the coming years; welcomes, among other things, the ECB’s second economy-wide climate stress test in September 2023; takes note of the conclusions of the ECB’s Occasional Paper Series No. 328 on ‘The Road to Paris: stress testing the transition towards a net-zero economy’ as it claims that the best way to achieve a net-zero economy for firms, households and banks in the euro area is to accelerate the green transition to a rate that is faster than under current policies; notes that the ECB takes into account climate- and nature-related financial risks in its supervisory practices and monitors growing physical and transition risks closely;

Added:31. Takes note of the Commission’s proposal on transparency, comparability and quality of ESG ratings; notes that the EBA recommends that external credit assessments integrate environmental and/or social factors as drivers of credit risk whenever relevant;

Resolution

Change 13

Changed:17.32. Welcomes the SRB’s approaches to deepening resolutionresolvability assessments by developing quality control measures for resolution plans and assessing whether these plans can be implemented at short notice; points out that, for resolution plans to be fully compliant with the legal requirements, they must include a comprehensive assessment of each bank’s resolvability, including whether substantive impediments to resolvability exist and how those impediments can be removed, including changes to a bank’s structure and organisation if necessary;

Change 14

Removed:18. Welcomes the new SRB Chair’s decision to undertake a comprehensive strategic review and deliver a new action plan;

Added:33. Welcomes that overall banks under the SRB’s remit have delivered good progress towards resolvability and in building up loss-absorbing capacity; expects this positive trend to continue recalls that achieving resolvability for all institutions should not be a ‘moving target’ and that all banks should be fully resolvable by the end of 2023; notes that further progress is needed for all banks;

Removed:19. Underlines the importance of protecting creditor hierarchy in banking resolution; welcomes the joint ECB banking supervision, SRB and EBA statement regarding the full use of common equity instruments before Additional Tier 1 capital is written down;

Added:34. Welcomes the new SRB Chair’s decision to undertake a comprehensive strategic review and deliver a new action plan; calls on the SRB to further improve the transparency of its decisions;

Removed:20. Welcomes the proposal to reform the CMDI framework following calls by Parliament; calls for the scope of resolution to be expanded, clarification of public interest assessments and for the scope of State aid to be limited;

Added:35. Underlines the importance of protecting creditor hierarchy in bank resolution and insolvency procedures; welcomes the statement by the ECB banking supervision, SRB and EBA underlining that in the EU, common equity instruments shall absorb losses and Additional Tier 1 could only be written down if the former have been fully used; recalls the need, as expressed by the SRB Chair, to fully and entirely respect the write-down hierarchy in the event of bank failure;

Removed:21. Highlights the role of the SRB and industry-funded safety nets in protecting taxpayers from paying for bailouts; calls for the introduction of a backstop consisting of a credit line from the European Stability Mechanism;

Added:36. Notes that fossil fuels are the main contributor to accelerating climate change, and that many fossil fuel assets will need to be abandoned before the end of their economic life, losing all of their value and becoming stranded assets;

Added:37. Notes the proposal to reform the CMDI framework following calls by Parliament; calls for the scope of resolution to be expanded, for the public interest assessment to be clarified, for taxpayers to be insulated from the cost of bank failures and for the scope of State aid to be limited, as well as for the mitigation of any measures which could create excessive moral hazard; calls for a rapid and effective adoption of the CMDI review;

Added:38. Notes that a failing bank is only sent into resolution when it cannot go through normal insolvency proceedings without harming the public interest or causing financial instability; notes also that proposals for future reform include giving small and medium-size banks with a positive public interest assessment access to the EU-level resolution framework provided that they comply with the conditions for accessing the Single Resolution Fund;