CRD V and CRR II - Finalising Basel III and Setting the stage for Basel IV
With the publication of drafts for amendments to the CRD and CRR in November of 2016, the EU took the final steps to complete its implementation of the Basel III framework that entered into force on 1. of January 2014. However, at the same time as Basel III is finalised, the drafts already contain provisions for what is now widely called Basel IV. Thus, they do not only mark the finalisation of one set of rules but at the same time the transition to a completely new framework of regulatory rules.
When Basel III was implemented in the EU in 2014, it marked a huge leap in banking regulation as for the first time, a single rule book was established, creating unified rules for all EU banks. Hence, the CRR impacted the banking sector on the one hand side by implementing Basel III – creating new rules on own funds and introducing for the first time internationally comparable liquidity ratios and a reporting requirement for a leverage ratio. On the other hand, CRR also unified all other existing rules in the EU’s pillar I framework, putting to an end the diverging implementation of 26 different nation states.
However, following the Basel III provisions, the CRR contained transitional provisions for the introduction of binding minimum requirements for the Leverage Ratio and the Net Stable Funding Ratio (NSFR) which were supposed to enter into force on 1st January 2018. The draft CRR now published contains the to be finalised set of rules for these ratios, along with some other implementation issues that were either pending or subject to review some years after CRR entered into force.