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Banking Reforms Achieved: European Parliament Reaches Deal to Finalize Overarching Changes in Banking Regulations

On 29 June 2023, negotiators from the European Parliament, Council, and Commission have reached a provisional agreement on changes to the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD). The objective is to align EU legislation with the Basel III standards while considering the specific conditions of the EU banking sector.

Key highlights of the agreement include applying the "output floor" calculated by banks at an entity level, with a review of the banking system's overall situation by the end of 2028. Environmental, social, and governance (ESG) risks should be considered in collateral assessment, with the European Banking Authority (EBA) evaluating the need for prudential treatment for ESG exposures. Lower risk weights will be applied to EU Emissions Trading System exposures to support climate change efforts.

Disclosures of crypto-asset exposure by banks will be required, and the Commission will propose legislation for the prudential treatment of such exposures during the transitional period. The agreement also emphasizes suitability assessments for management board members, promoting diversity and gender balance.

A framework for third country banks' access to EU markets has been established, with requirements for establishing an EU branch and obtaining authorization. Existing contracts with third country entities will remain unchanged.

The provisional agreement will undergo approval by the Economic and Monetary Affairs Committee and a plenary vote in the European Parliament, as well as the Council's approval, before coming into force.

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