2021/0342(COD) Amendments to the Capital Requirements Regulation

Progress: Awaiting Parliament's position in 1st reading

Lead ECON FERNÁNDEZ Jonás (icon: S&D S&D) KARAS Othmar (icon: EPP EPP), BOYER Gilles (icon: Renew Renew), NIINISTÖ Ville (icon: Verts/ALE Verts/ALE), ZANNI Marco (icon: ID ID), VAN OVERTVELDT Johan (icon: ECR ECR), PAPADIMOULIS Dimitrios (icon: GUE/NGL GUE/NGL)
Lead committee dossier:
Legal Basis:
TFEU 114


   EP - Committee decision to enter into interinstitutional negotiations confirmed by plenary (Rule 71)
   EP - Committee decision to enter into interinstitutional negotiations announced in plenary (Rule 71)
   EP - Committee report tabled for plenary, 1st reading

The Committee on Economic and Monetary Affairs adopted the report by Jonás FERNÁNDEZ (S&D, ES) on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor.

As a reminder, the proposal amending Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor aims to contribute to financial stability and to the steady financing of the economy in the context of the post-COVID-19 crisis recovery. It aims to strengthen and facilitate the allocation of capital and liquidity within banking groups in Europe without imposing a significant increase in their capital requirements.

The committee responsible recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the proposal as follows:

Level of application of the output floor

Members recalled that the output floor represents one of the key measures of the Basel III reforms. It aims at limiting the unwarranted variability in the regulatory capital requirements produced by internal models and the excessive reduction in capital that an institution using internal models can derive relative to an institution using the revised standardised approaches. Those institutions can do so by setting a lower limit to the capital requirements that are produced by institutions’ internal models to 72.5% of the capital requirements that would apply if standardised approaches were used by those institutions. Implementing the output floor faithfully should increase the comparability of the institutions’ capital ratios, restore the credibility of internal models and ensure that there is a level playing field between institutions that use different approaches to calculate capital requirements.

To harmonise the internal market for banking, the approach for the output floor should be coherent with the principle of risk aggregation across different entities within the same banking group and the logic of consolidated supervision. At the same time, the output floor should address risks stemming from internal models in both home and host Member States. The output floor should therefore be calculated at the highest level of consolidation in the Union. However, to avoid unintended impacts and ensure a fair distribution of capital, a competent authority may submit a capital redistribution proposal to the consolidating supervisor if it deems that this would lead to an inappropriate distribution of capital among the group entities. The notifying competent authority and the consolidating supervisor should then endeavour to make a joint decision on the application of the output floor, and if they do not reach a decision within three months, EBA should have a legally binding mediation role. EBA should assess the level of application of the output floor by 31 December 2027 in light of potential financial stability concerns and the progress in the banking union.


The implementation of the outstanding elements of the Basel III reform should avoid a significant increase in overall capital requirements for the EU banking system as a whole and take into account the specificities of the EU economy where there is sufficient evidence that the international framework does not take these specificities into account. In addition, the approach should ensure proportionality of rules and aim to further reduce compliance and reporting costs, in particular for smaller and non-complex institutions, without relaxing prudential standards.

Increasing coverage of external ratings

After the transition period, institutions should be able to refer to credit assessments by external credit assessment institutions (ECAIs) to calculate the capital requirements for a significant part of their corporate exposures. Rating solutions beyond the currently existing rating ecosystem should be developed to incentivise especially larger corporates to become rated. Avenues to attain this goal should consider the requirements related to external credit assessments, or the establishment of additional institutions providing such assessments.

Member States should assess whether a request for the recognition of their central bank as ECAI and the provision of corporate ratings by the central bank for the purposes of this Regulation may be desirable in order to increase the coverage of external ratings.

Prudential treatment of securitisation

The introduction of the output floor could have a significant impact on own funds requirements for securitisation positions held by institutions using the Securitisation Internal Ratings Based Approach(SEC-IRBA). The introduction of the output floor could affect the economic viability of the securitisation operation because of an insufficient prudential benefit of the transfer of risk. A mandate should be given to EBA to report to the Commission on the need to eventually provide for a specific arrangement increasing the risk-sensitivity of the standardised approach of the purpose of the calculation of the output floor.

Environmental, social and governance (ESG) factors and risks

Assets or activities subject to impacts from environmental and/or social factors should be defined by reference to the ambition of the Union to become climate-neutral by 2050 as set out in the EU Climate Law, the EU Nature Restoration Law, and the relevant sustainability goals of the Union.

The technical screening criteria for ‘do no significant harm’ as well as specific Union legislation to avert climate change, environmental degradation and biodiversity loss should be used to identify assets or exposures for the purpose of assessing dedicated prudential treatments and risk differentials.

To ensure that competent authorities have granular, comprehensive and comparable data for effective supervision, information on ESG exposures should be included in the supervisory reporting of institutions.

Crypto assets

The rapid increase in the financial markets’ activity on crypto-assets and the potentially increasing involvement of institutions in crypto-assets related activities should be thoroughly reflected in the Union prudential framework, in order to adequately mitigate the risks of these instruments for the institutions’ financial stability.

The recently published Basel Committee on Banking Supervision (BCBS) standards on the prudential treatment of crypto asset exposures provide for specific prudential treatment which should be implemented in Union law in due course. The Commission should, if appropriate, adopt a legislative proposal by 31 December 2024 to transpose the various elements of the BCBS standards into EU law. Until the legislative proposal is adopted, institutions' exposure to crypto assets should apply prudent capital requirements.

   EP - Vote in committee, 1st reading
   EP - Committee decision to open interinstitutional negotiations with report adopted in committee
   EP - Amendments tabled in committee
   EP - Amendments tabled in committee
   EP - Amendments tabled in committee
   EP - Amendments tabled in committee
   EP - Committee draft report
   ECB - European Central Bank: opinion, guideline, report
   ESC - Economic and Social Committee: opinion, report
   EP - Committee referral announced in Parliament, 1st reading
   EC - Legislative proposal published

PURPOSE: to amend Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor with a view to making the EU banking sector more resilient to potential future economic shocks.

PROPOSED ACT: Regulation of the European Parliament and of the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: following the major financial crisis of 2008-2009, the EU and its G20 partners in the Basel Committee on Banking Supervision reached the Basel IIII agreement to make banks more resilient to potential economic shocks. Thanks to the reforms already implemented, the EU banking sector entered the COVID-19 crisis on a much more resilient footing. However, while the overall level of capital in EU banks is now satisfactory on average, some of the problems that were identified in the wake of the financial crisis have not yet been addressed.

The proposed amendment to Regulation (EU) No 575/2013 (the Capital Requirements Regulation or CRR) is part of a legislative package that includes also amendments to Directive 2013/36/EU (the Capital Requirements Directive or CRD) and a separate legislative proposal to amend the Capital Requirements Regulation in the area of resolution (the so-called ‘daisy chain’ proposal).

This package of proposals marks the final step in this reform of banking rules and faithfully implements the international Basel III agreement, while taking into account the specific features of the EU's banking sector.

CONTENT: the proposal amending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor aims to contribute to financial stability and to the steady financing of the economy in the context of the post-COVID-19 crisis recovery .

The proposal includes provisions on the following issues:

Strengthen the risk-based capital framework, without significant increases in capital requirements overall

The current CRR stipulates that the amount of capital that a bank must hold to cover the risks to which it is exposed is calculated as a certain percentage (the ‘capital requirement’) of its risk-weighted assets. Banks may calculate their risk-weighted assets either under a standardised approach or under an internal model-based approach that allows the banks themselves to estimate the parameters used in the calculation of the capital requirement.

This proposal adds an additional step in the calculation of capital requirements . Specifically, a bank using internal models will now have to follow these steps when calculating its risk-weighted assets:

- Step 1: calculate the risk-weighted assets using whichever model the bank is permitted to use;

- Step 2: calculate the risk-weighted assets using the standardised approach;

- Step 3: multiply the amount obtained with the standardised approach in step 2 by 72.5% ;

- Step 4: compare the risk-weighted assets resulting from this calculation in step 3 with the risk-weighted assets obtained with the calculation in step 1. Whichever amount is higher has then to be used to calculate the bank's various capital requirements.

The overall aim of this amendment is to increase the comparability of risk-based capital ratios across banks and restore confidence in those ratios and the soundness of the sector overall. At the same time, the reform is intended to simplify the risk-based framework thanks to better standardisation in the calculation of capital requirements.

Enhance the focus on ESG risks in the prudential framework

The proposal reinforces the need to consistently integrate environmental, social and governance (ESG) risks into banks' risk management systems and in supervision overall. The scope of ESG disclosures is to be extended to all institutions (it currently only applies to large listed ones).

Further harmonise supervisory powers and tools

While Union legislation ensures a minimum level of harmonisation, the supervisory toolkit and procedures vary greatly across Member States. The Commission seeks to improve the current reform by enhancing the enforcement of prudential rules. Supervisors need to have at their disposal the necessary tools and powers to this effect. The proposal seeks to provide supervisors with the necessary powers to assess certain operations (acquisition of qualifying holdings, transfer of assets or liabilities, mergers or divisions) that can be considered material from a prudential perspective insofar as they can alter the prudential profile of a credit institution.

Reduce institutions’ administrative costs related to public disclosures and to improve access to institutions’ prudential data

To resolve the issue relating to the access to prudential situations, the Commission proposes to centralise disclosures of prudential information with a view to increasing access to prudential data and comparability across industry. The centralisation of disclosures in a single access point established by EBA is also aimed at reducing the administrative burden for institutions.

   EP - FERNÁNDEZ Jonás (S&D) appointed as rapporteur in ECON


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