First, the capital requirements have been raised so that internationally active banks must have common equity ratios of at least 7 percent of risk-weighted assets when the standards are fully phased in by 2019. This 7 percent standard consists of a 4.5 percent minimum plus a 2.5 percent capital conservation buffer. Banks whose capital ratios fall into the buffer range will face increasingly stringent restrictions on capital distributions such as dividends and share repurchases and discretionary bonus payments to staff. This should act as a form of “automatic stabilizer” to their capital resources and change the incentives banks face during periods of stress. Second, for many globally active banks, the amount of capital required will also rise because the amount of risk-weighted assets against which the capital ratios are calculated will increase. Explicit capital requirements for operational risk and counterparty credit risk, as well as increased requirements for certain trading activity and transactions between financial institutions should result in a significant rise in risk-weighted assets. On the quality side, capital requirements have been toughened by narrowing the definition of what can be counted toward common equity capital for regulatory capital purposes. The emphasis has been put on common equity because of the superior loss-absorbing capacity of this type of capital on a going concern basis.
The creation of such a mechanism is undoubtedly the first task awaiting the countries of the euro zone that I wished to highlight. This mechanism is pivotal insofar as the euro members share a common monetary policy regardless of their different positions in the economic cycle. Secondly, it is also essential to conclude the Banking Union, in particular by reaching an agreement to achieve a truly and fully mutualised European Deposit Guarantee Fund to guarantee financial stability and address financial fragmentation. Thirdly, it is necessary to move towards the implementation of a true European Capital Markets Union, eliminating the barriers currently in place (such as the differing insolvency regimes in each country). It is important to bear in mind that European capital markets are underdeveloped and poorly integrated when compared, for example, with those of the United States. We cannot allow ourselves to miss the “opportunity” that this crisis has offered us to internally strengthen our common European project and strongly project our values and interests to the world. It is time to take decisive steps towards greater European integration in order to reinforce the European project and play a leading role in strengthening multilateralism. It is the appropriate way to emerge stronger from this serious crisis. Only in this way will we be able to offer a brighter tomorrow for future generations.