Banking Package (CRR III/CRD VI)

The Banking Package (CRR III/CRD VI) introduces the final Basel III reforms in Europe, as well as new requirements linked to ESG risk exposures, crypto-assets and shadow banking.

Executive summary

In October 2021, the European Commission (EC) published the first draft of the Banking Package, a set of reforms to the prudential regulatory framework with the aim of strengthening banks' resilience to potential future economic shocks, as well as contributing to the recovery from the COVID-19 pandemic and the transition to climate neutrality. This package contains the proposed amendments to the Capital Requirements Regulation (CRR III) and the Capital Requirements Directive (CRD VI). Between April and May 2024, the proposals were approved by the European Parliament (EP) and the Council of the European Union (EU),  including new requirements related to crypto-assets and shadow banking. Finally, the final versions of these amending rules were published in the Official Journey of the European Union (OJEU) on 19 June 2024.

CRR III will apply from 1 January 2025, except for certain articles mainly related to EBA mandates, which will apply from July 2024. As for CRD VI, Member States have 18 months to transpose the Directive into national law, and once this transposition is completed, CRD VI will enter into force on the following day and will apply from 11 January 2026.

Main content

CRR III

• Credit risk framework. The standardised approach (SA-CR) has been revised to increase its risk sensitivity and granularity, especially for exposures to corporates, subordinated debt, equities, unrated corporates and specialised lending. The new text recalibrates some risk weights for revised categories (e.g. institutions, corporates), introduces some adjustments to the treatment of mortgages and includes changes to the treatment of risk classes that were not modified in the first version (e.g. exposures to regional governments and local authorities, covered bonds). It also restricts the use of the Internal Ratings Based (IRB) approach for certain low default portfolios and introduces floors to the parameters to limit variability and reduced own funds requirements arising from the use of internal models.
• Market risk framework. The boundary between the trading book and the non-trading book has been revised, as have the standardised and internal model approaches for market risk. The Regulation introduces specific adjustments including a simplified standardised approach for medium-sized firms in the trading book, a specific risk weight for carbon trading exposures under the EU Emissions Trading Scheme (ETS), as well as a temporary exemption for the residual risk charge under the alternative standardised approach.
• Operational risk framework. The existing methods for operational risk have been replaced by a single standardised method based on the business indicator. The business indicator is primarily based on the components of gross margin. New requirements linked to the loss database and on the operational risk management framework have also been introduced.
• Output floor. The capital floor, based on standardised methods, is to be applied across the board to all levels of consolidation, with the exception of measures taken by Member States. This floor will be 50% in 2025, and will gradually increase to its full application (72.5% in 2030).
• ESG risks. All institutions must disclose their exposure to ESG risks and activities that are subject to the impact of environmental or social factors.
• Crypto-assets. By 30 June 2025, the Commission should present a legislative proposal to introduce a specific prudential and reporting treatment for exposures to crypto-assets, taking into account international standards and Regulation (EU) 2023/1114 (MiCAR).  The Regulation introduces specific capital requirements for this type of asset, which will have to be applied on a transitional basis until the new law enters into force.
• Shadow banking. Institutions must report their 10 largest shadow banking exposures to the competent authorities. They must also disclose these exposures on an aggregate basis.

CRD VI

• ESG risks. The sustainability dimension has been introduced into the prudential framework to ensure the identification, measurement, management and monitoring of ESG risks. In addition, ESG risks should be taken into account in the Supervisory Review and Evaluation Process (SREP) and specific stress testing methodologies for ESG risks should be developed.
• Output floor (OF). Safeguards have been introduced to avoid unwarranted increases in P2R and the systemic risk buffer requirement (SyRB). These cannot be used to cover risks that are already fully covered by the OF.
• Fit-and-Proper Framework. This framework sets out requirements to ensure that the fitness and propriety of Board members and key management personnel is effectively assessed.
• Other. Other aspects are updated, such as the framework governing third-country institutions operating in the EU, the centralized provision of information by the EBA on small and non-complex institutions, and the supervisory powers of the competent authorities.

Download the technical note about the Banking Package (CRR III/CRD VI).