The European Commission has unveiled a new set of proposals aimed at banks operating in the European Union (EU) that could potentially add further pressure on balance sheets that are already facing a challenging environment of low interest rates.
The key aspect of the proposed reforms – released Wednesday morning - is the implementation of a caveat that is designed to deal with the "too-big-to-fail" problem at an international level. Known as the total loss-absorbing capacity (TLAC), this part of the proposals is expected to tackle risks linked to globally and systemically important banks.
It would require banks to hold sufficient amounts of readily liquid capital in order to safeguard financial stability and public funds. The rules could affect big Wall Street banks as well as other non-EU banks which have operations in the region.
"Of course it is in our interest to have a banking sector that is stable and which his not building up excessive risks," European Commission Vice President Valdis Dombrovskis told CNBC Wednesday. "So what we are doing, we are implementing standards that are agreed internationally which we expect other jurisdictions to implement these standards."