While the new European standards for national regulators are being drafted, the Czech Banking Association (CBA) says that the real risks lies in specific business models, and country specific elements, which can pose a threat to the markets if not adequately addressed in the new legislation, reports EurActiv Czech Republic.
In July, the European Banking Authority (EBA) submitted a draft regulatory proposal that identified how banks should future-proof their balance sheets to avoid financial missteps and errors. The standard attempts to clarify rules set out in the EU’s Recovery and Resolution Directive adopted in 2014.
It is expected that regulators communicate with banks about minimum requirements on “eligible liabilities” (MREL), which they are supposed to have in place to prepare and prevent future failures.
But the new standard might be a tough one for Czech banks to adopt. Although the current legislation allows regulators to be held accountable for national specificities, there are many divergent opinions and last minute changes to the text, which can have an impact on Czech banks. A previous MREL draft process underwent the same process and due to further changes, it “weakened the financial position of Czech banks” the EurActiv report says.
When compared to other EU countries, the Czech National Bank has set out tougher capital requirements but according to the new draft, Czech banks will have to go an extra mile to avoid systemic failures. The country’s financial sector is hoping that the new standard will allow some flexibility and regulators will be able to consider specific market conditions before holding a bank accountable for failures.
The draft standard is currently with the European Commission and if it is adopted it will go on to the European Parliament and Council for consultation. The legislation is expected to go into effect in 2016.