The Single Rulebook

The Single Rulebook aims to provide a single set of harmonised prudential rules which institutions throughout the EU must respect. The term Single Rulebook was coined in 2009 by the European Council in order to refer to the aim of a unified regulatory framework for the EU financial sector that would complete the single market in financial services. This will ensure uniform application of Basel III in all Member States. It will close regulatory loopholes and will thus contribute to a more effective functioning of the Single Market.

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Why do we need a Single Rulebook?

European banking legislation is currently based on a Directive which leaves room for significant divergences in national rules. This has created a regulatory patchwork, leading to legal uncertainty, enabling institutions to exploit regulatory loopholes, distorting competition, and making it burdensome for firms to operate across the Single Market.

Moreover, the financial crisis has shown that in integrated financial markets, these divergences can have very disruptive effects. Once risks generated under the curtain of minimum harmonisation materialise, the impact is surely not contained within national boundaries but spread across the EU single market.

It is, therefore, crucial to use exactly the same definition of regulatory aggregates and the same methodologies for the calculation of key requirements, such as the capital ratio.

A Single Rulebook for a more resilient, transparent and efficient banking sector

A Single Rulebook based on a regulation will address these shortcomings and will thereby lead to a more resilient, more transparent, and more efficient European banking sector:

  • A more resilient European banking sector: A Single Rulebook will ensure that prudential safeguards are, wherever possible, applied across the EU and not limited to individual Member States as the crisis highlighted the extent to which Member States' economies are interconnected.
  • A more transparent European banking sector: A Single Rulebook will ensure that institutions' financial situation is more transparent and comparable across the EU for supervisors, deposit-holders and investors. The financial crisis has demonstrated that the opaqueness of regulatory requirements in different Member States was a major cause of financial instability. Lack of transparency is an obstacle to effective supervision but also to market and investor confidence.
  • A more efficient European banking sector: A Single Rulebook will ensure that institutions do not have to comply with 27 differing sets of rules.

Single Rulebook and flexibility

Although a Single Rulebook is a key for Europe, it is true that the new regulatory framework has to be shaped in such a way to leave a certain degree of national flexibility in the activation of macro prudential tools, as credit and economic cycles are not synchronised across the EU.

For this reason, Member States will retain some possibilities to require their institutions to hold more capital. For example, Member States will retain the possibility to set higher capital requirements for real estate lending, thereby being able to address real estate bubbles. If they do, this will also apply to institutions from other Member States that do business in that Member State. Moreover, each Member State is responsible for adjusting the level of its countercyclical buffer to its economic situation and to protect economy/banking sector from any other structural variables and from the exposure of the banking sector to any other risk factors related to risks to financial stability.

Furthermore, Member States would naturally retain current powers under "pillar 2", i.e. the ability to impose additional requirements on a specific bank following the supervisory review process.

EBA's role in building of the Single Rulebook

The European Banking Authority plays a key role in building up of the Single Rulebook in banking.

The EBA is mandated to produce a number of Binding Technical Standards (BTS) for the implementation of the CRD IV package and the BRRD. BTS are legal acts which specify particular aspects of an EU legislative text (Directive or Regulation) and aim at ensuring consistent harmonisation in specific areas. BTS are always finally adopted by the European Commission by means of regulations or decisions. At that point they become legally binding and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited.

Furthermore, the EBA is coordinating a Single Rulebook Q&A process. Through this process, the EBA will be in charge of answering questions from stakeholders on the practical implementation of the CRD IV package and the BRRD including technical standards and guidelines as part of the legislative texts.

Finally, as part of its contribution to a common supervisory culture across the EU, the EBA will review the application of all BTS adopted by the European Commission and propose amendments where appropriate.