Proposal for amending the capital requirement directives
On 19th March the Financial Supervisory Authority of Norway proposed amendments to the regulations in the directives regarding capital requirements. The proposals are made because of the financial crisis, and introduce collective European guidelines for hybrid capital. The amendments shall be effective as of the end of 2010.
The amendments of the regulations are a follow up of the amendments of EU directives. The amendments of the directives that form the basis for the amendments of the regulations contain revised requirements for i.a. hybrid capital, supervision cooperation, large engagements, securitisation, market risk and remuneration. As the Norwegian rules are strict in these fields, the Financial Supervisory Authority has concluded that the implementation of the directives will not be a substantial challenge for Norwegian institutions.
Regarding hybrid capital, the amendments will result in stricter requirements for this type of capital; while at the same time give more room for the inclusion of hybrid capital. The new rules allow hybrid capital to amount to 50 % of the core capital, while hybrid capital of the lowest quality can amount to 15 %. The hybrid instruments shall have a mechanism for covering loss and not prevent recapitalization. Regarding the level the mechanism shall be triggered at, it is proposed that the owners of the hybrid capital shall cover loss if the core capital coverage falls below eight percent.
It is also proposed that the new requirements for liquidity management are implemented in a new extended liquidity regulation.
An extensive review of the capital coverage regulations is also expected, based on proposals from the Basel Committee of 17th December 2009, and the proposal from the EU Commission of 26th February 2010, hereunder the regulation of system important institutions, the level of the minimum requirements for capital, binding requirements for unweighted capital participation, quantitative requirements for liquidity, harmonized higher quality for liable capital and framing of macro supervision.
Please contact Attorney Børge Grøttjord if you have questions regarding the revision of the capital requirements regulations.