As a consequence of the financial crisis, the EU undertook a significant reform of the financial services regulatory framework in order to increase the resilience of financial institutions. This reform was largely based on the Basel III framework agreed by the BCBS in 2010. Among its many measures, the reform package included the adoption of a Capital Requirements Directive and Regulation (CRD IV and CRR), which reinforced the prudential requirements for credit institutions and investment firms.
CRR II – Regulation 2019/876
In November 2016, the European Commission (EC) published a package of proposals for the reform of the banking system in order to complete the European post-crisis regulatory reforms. This package covered risk-reduction measures that allow further progress in completing the Banking Union and the Capital Markets Union, and implemented some outstanding elements that are essential to make the financial system more resilient and stable.
In this context, in June 2019 the European Parliament (EP) and the Council published the Regulation (EU) 2019/876 or CRR II amending the CRR, regarding the own funds and eligible liabilities, leverage ratio (LR), net stable funding ratio (NSFR), credit risk, counterparty credit risk (CCR) and market risk, large exposures framework, and the reporting and disclosure framework.
This Technical Note summarises the main amendments covered in the Regulation (EU) 2019/876.
Executive Summary
The EP and Council published the Regulation (EU) 2019/876 or CRR II amending the CRR, including amendments regading several aspects covered in the CRR.
Scope
The CRR II shall apply to credit institutions, financial holding companies and supervised mixed financial holding companies. In addition, the CRR II also establishes uniform rules on eligible own funds and liability requirements to be met by resolution entities that are G-SII, part of G-SII and significant subsidiaries of G-SII outside the EU.
Main content
This document includes the results of the Basel III reforms carried out for entities that participate on the monitoring reports.
- Leverage ratio. This reform introduces a minimum binding LR requirement for all institutions subject to the CRR, set at three percent of Tier 1 as a percentage of the total exposure measure; and an additional LR buffer for global systemically important institutions.
- Net Stable Funding Ratio. This reform introduces amendments on, among others, the exemption to individual and consolidated application of liquidity requirements.
- Capital base. This reform specifies that institutions should not deduct from the CET1 those intangible assets that are prudently valued software assets the value of which is not negatively affected by resolution, insolvency or liquidation of the institution.
- Credit risk. This reform introduces amendments regarding massive disposals, pension and salary-backed loans, and SMEs factor.
- Market risk. This reform includes a reporting requirement that requires institutions shall report, for all their trading book positions and all their non-trading book positions that are subject to foreign exchange or commodity risks, the results of the calculations based on using the alternative standardised approach.
- MREL. This reform implements the TLAC standard published by the FSB by introducing a minimum Pillar 1 MREL requirement in the CRR; and amends the existing MREL requirement in the BRRD (Pillar 2 MREL requirement) to be aligned with the TLAC standard.
- Other aspects. This reform also includes other amendments in relation to financial and mixed holding companies; large exposures; reporting; disclosure; exposures to central counterparties; exposure to collective investment undertaking (CIUs); etc.
Download the technical note (available in Spanish).