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13 December 2016

AFME: Free Flow of Capital and Liquidity - Issues for Cross-border Groups in the EU Prudential Framework


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This paper describes the types of restrictions and obstacles cross-border groups face in relation to the current EU prudential framework as set out in the existing Capital Requirements Regulation (CRR) and puts forward recommendations for how they could be addressed.


It does not provide Association for Financial Markets in Europe’s (AFME’s) views on proposed changes to the prudential framework published by the European Commission on 23 November as AFME is in the process of analysing these with our members. AFME will communicate its views on the new proposals separately.

Some of the recommendations made in this paper may therefore be viewed as long term goals. It is nevertheless important to bear in mind the significant economic benefits of removing obstacles to the free flow of funds.

Removing legislative barriers will enable more efficient internal capital allocation within banks, allowing resources to flow to where they are most in demand from European businesses and households. It will also help ensure continued funding of the real economy through cyclical downturns1 and greater resiliency of the banking sector in general, which in turn will help unlock growth opportunities through a more efficient allocation of savings to investments.

The paper is structured as follows:

  • Section 1 explains why it is appropriate to review the scope of the prudential framework for cross-border banks, or the treatment of their intragroup exposures in the shorter term
  • Section 2 examines how the scope of the prudential framework could be adjusted across the areas of risk-based capital requirements, the leverage ratio and liquidity requirements
  • Section 3 sets out the current treatment of intragroup exposures across all aspects of the framework and includes our recommendations for removing national dimensions and harmonisation
  • Section 4 describes issues faced by EU groups with international activities that arise mainly as a result of inefficient processes for determining the equivalence of third country prudential frameworks.

Briefing note



© AFME


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