The overarching goal of the Basel III agreement and its implementing act in Europe, the Capital Requirements Regulation (CRR) and Directive (CRD), is to strengthen the resilience of the banking sector across the European Union (EU) so it would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth.

The European Banking Authority (EBA) plays a key role in the implementation of the new Basel 3 regulatory framework in the European Union.

What is Basel III?

Basel III is a comprehensive set of reform measures in banking prudential regulation developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:

• Improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source;
• Improve risk management and governance;
• Strengthen banks' transparency and disclosures.

The Basel III agreement was endorsed by the G20 in November 2010 and consists of several sequential updates:

• Basel III: A global regulatory framework for more resilient banks and banking systems (revised version June 2011)
• Liquidity Coverage Ratio (January 2013) 
• Net Stable Funding Ratio (October 2014) 
• Basel III: Finalising post-crisis reforms (December 2017)
• Minimum capital requirements for market risk (January 2016, revised January 2019)

The implementation of Basel III in the EU: the CRR and the CRD 

The EU is committed to implementing the Basel III framework in the EU. Its implementation started with the entry into force of the new “CRD IV” package on 17 July 2013.

CRD IV commonly refers to both:

• The EU Directive 2013/36/EU (CRD IV)
• The EU Regulation 575/2013 (CRR)

CRD IV and the CRR apply as of 1 January 2014, with some provisions phased-in until 2019.*

A new CRR/CRD proposal, which incorporates additional changes to the Basel 3 framework, is in process of being developed by the European Commission with technical support from EBA (click here to access the EBA’s work on the European Commission’s Call for Advice (CfA) on the impact and implementation of the finalised Basel III standards).

*A new CRR2/CRD5 package was adopted on 20 May 2019 by the European Parliament with changes unrelated to the Basel III framework and will apply starting 28 June 2021.

Mapping between Basel III standards and EU legislation

* And subsequent amendments

The EBA plays a key role in the implementation of the Basel III framework in the EU.

On the one hand, it provides expert technical advice to the EU institutions during the legislative process. On the other hand it is mandated to produce a number of Binding Technical Standards (BTS), Guidelines and Reports. 

BTS are legal acts which specify particular aspects of an EU legislative text (Directive or Regulation) and aim at ensuring consistent harmonisation in specific areas. BTS are always finally adopted by the European Commission by means of Regulations or Decisions. According to EU law, Regulations are legally binding and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited.

Guidelines are an important tool for fostering convergence of supervisory practices across the EU. Although they are not legally binding, supervisory authorities and institutions around Europe must make every effort to comply with them. Supervisory authorities, in particular, are obliged to inform the EBA of their compliance or intention to comply with them and to also explain the reasons for an eventual non-compliance.

Reports aim at evaluating or assessing the impact of several provisions included in the legislative text, such as the implementation of a leverage ratio in Europe or the evaluation of the impact of the new provisions on lending to small and medium enterprises (SMEs).

Basel III monitoring exercise

To assess the impact of the full implementation of the new Basel III framework on the European banking system, the EBA conducts, on a semi-annual basis (with data as of end-June and end-December), a voluntary monitoring exercise on a sample of EU banks.

Click here for more info on the Basel III monitoring exercise.