On 27 October 2021, the EU Commission published the Banking Package 2021, a legislative proposal that essentially serves the EU implementation of the internationally agreed "Basel III finalisation". This entails fundamental changes to the CRD (Capital Requirements Directive) and the CRR (Capital Requirements Regulation). The amended requirements are referred to as CRD VI and CRR III. On the basis of the legislative proposal, the EU Parliament and the Council of the EU will deal with the issue in the further legislative process as well as in the final trilogue negotiations.
The amended requirements are expected to enter into force in mid-2024. The majority of the new requirements are to be applied from 1 January 2025 (with transitional arrangements in some cases until 2032).
The Basel III reform, which is now to be implemented in EU law, was agreed internationally at the end of 2017. (see also Basel regulatory framework). The legislative proposal was preceded by a consultation of the EU Commission with numerous specific questions on EU implementation (but without concrete wording proposals for amending the CRD/CRR) and two impact studies by the European Banking Authority, EBA (2019 and 2020). Since the legislative proposal largely follows the EBA recommendations on the EU implementation, significantly higher capital requirements for German institutions can be estimated from the results of the EBA impact studies. However, this would be unjustified, especially for the low-risk business of real estate financing (see also vdp‘s press releases of 27. October 2021). Nevertheless, several European specificities that require deviations from the Basel requirements are likely to remain (e. g. SME supporting factor and CVA exemption for non-financial counterparties).
The amendments due to the CRD V and the CRR II address, among others the following topics:
- Requirements for the management of environmental, social and governance (ESG risks)
- Credit risk standardised approach (CR-SA) and internal ratings-based approach (IRBA) for calculating the capital requirements for credit risk (Among others for real estate financing including the new asset class ADC, i.e. acquisition, development and construction of real estate, as well as for public sector lending and ship and aircraft financing)
- Introduction of an output floor to limit possible capital relief when using risk-sensitive internal approaches (IRBA etc.) with various transitional provisions also specifically for residential real estate financing
- Trading book definition: Introduction of lists of financial instruments for which it is assumed that they are to be allocated or not allocated to the trading book; However, the general trading book definition remains unchanged, in which the intention to trade is a condition for the trading book allocation
- Extension of reporting requirements for market risks to hard capital requirements
- Revision of the CVA requirements in accordance with the Basel requirements; deletion of the methods of the current CRR, establishment of three differently complex standard approaches
- Approaches for calculating the capital requirements for operational risk
- ESG risks: harmonised definitions, extension of reporting requirements, bringing forward the EBA report on prudential treatment