The Council of the European Union adopted regulation regarding regulatory technical standards on the consistent application of calculation methods of solvency for financial conglomerates. This is a complicated piece of regulation that should stop financial conglomerates turning themselves into a risk for financial stability. This should be Europe’s answer to the somewhat weakened implementation of Basel III. Note, I referred to this Standard in an earlier post.
The principles underlying the standards are clear:
- Elimination of multiple gearing;
- elimination of intra-group creation of own funds;
- transferability and availability of own funds; and
coverage of a deficit at financial conglomerate level regarding cross-sector capital.
Note also Article 9, which requires a solvency requirement (when bank rules apply) that includes:
- the requirements of CRR and CRD to hold capital in excess of those requirements (the normal capital requirements),
- including a requirement arising from the (ICAAP, following Article 73 of the Directive),
- any requirement imposed by a competent authority pursuant to Article 104(1)(a) of that Directive (Second Pillar),
- the combined buffer requirement as defined in Article 128(6) of that Directive (Conservation, Cyclical, and SIB buffers),
- and measures adopted according to Articles 458 (macroprudentially inspired) or 459 (prudential requirements) of Regulation (EU) No 575/2013.
The Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.