Financial supervision
Capital requirements
Rules on capital requirements for credit institutions aim to put in place a comprehensive and risk-sensitive framework and to foster enhanced risk management amongst financial institutions. Capital requirements rules state that credit institutions must at all times maintain a minimum amount of financial capital, in order to cover the risks to which they are exposed.
Crisis management
The recent financial crisis has highlighted the need for an EU-wide effective crisis management for cross-border financial institutions. Over the years, the Single Market has grown in size and in importance and now features a high degree of integration, not least because of the fact that a single passport and free establishment are guaranteed under a Treaty. While banking law is extensively harmonised in Europe, so far crisis management was not.
EU supervisory framework
Towards a new supervisory framework in the EU
On May 27, 2009, the European Commission revealed its plan for establishing a new European Supervisory Framework, which is largely based on the recommendations of the de Larosière Group Report of February 2009.
The Commission articulates the new framework according to two levels of supervision:
Liquidity risk
Liquidity is the ability of a bank to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. The fundamental role of banks in the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk, both of an institution-specific nature and that which affects markets as a whole. Virtually every financial transaction or commitment has implications for a bank’s liquidity.
