On April 2, the European Systemic Risk Board (ESRB) published a letter by Mario Draghi, as Chair of the ESRB, to EU legislators. The letter focused on developing further the legal basis of the current proposals for the Capital Requirements Directive and Regulation. Martin Wolff takes up the topic of capital requirements in a recent post on England’s Financial Policy Committee. On the US side, Ben Bernake stated on Monday that increased capital requirements for banks could make loans more expensive for financial institutions. The Economic and Monetary Affairs Committee of the European Parliament is also debating the topic this Thursday (17 April).
One of the key issues on the agenda will be the capital buffers put forward in a proposal for a directive.
According to the proposal, the Capital Conservation Buffer would amount to 2.5% of risk weighted assets and would apply at all times. While the conservation buffer would be meant to absorb losses in periods of stress that may span over a number of years, the countercyclical buffer would be needed during times of excessive credit growth.