The Capital Requirements Directives (CRD) for the

financial services industry Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics) ...

have introduced a supervisory framework in the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

which reflects the

Basel II Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was publ ...

and

Basel III Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response t ...

rules on capital measurement and capital standards. Member States have progressively transposed, and firms of the financial service industry thus have had to apply, the CRD from 1 January 2007. Institutions were allowed to choose between the initial

basic indicator approach The basic approach or basic indicator approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Basel II requires all banking institutions to set aside capital for opera ...

, which increases the minimum capital requirement in

Basel I Basel I is the first Basel Accord. It arose from deliberations by central bankers from major countries during the late 1970s and 1980s. In 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum ...

approach from 8% to 15% and the standardised approach, which evaluates the business lines as a medium sophistication approaches of the new framework. The most sophisticated approaches, Advanced IRB approach and AMA or

advanced measurement approach Advanced measurement approach (AMA) is one of three possible operational risk methods that can be used under Basel II by a bank or other financial institution. The other two are the Basic Indicator Approach and the Standardised Approach. The ...

for operational risk were available from January 2008. From this date, all concerned EU firms had to comply with

. The new CRD IV package entered into force on 17 July 2013: this updated CRD simply transposes into EU law the latest global standards on bank capital adequacy commonly known as

, which builds on and expands the existing Basel II regulatory base. CRD IV commonly refers to both the EU Directive 2013/36/EU and the EU Regulation 575/2013. The Capital Requirements Directives superseded the EU's earlier

Capital Adequacy Directive The Capital Adequacy Directive was a European directive that aimed to establish uniform capital requirements for both banking firms and non-bank securities firms, first issued in 1993 and revised in 1998. These was superseded by the Capital Requ ...

that was first issued in 1993.

Previous CRD packages

CRD I

In 2000, seven Banking Directives and their amending Directives were replaced by one single Banking Directive (2000/12/EC), which aimed to improve the clarity and transparency of the EU legislation and to create a kind of "European Banking Act". The adoption of the

guidelines in 2004 was followed at EU level by a recast of the Banking Directive on the one hand (Directive 2006/48/EC) and the

(Directive 93/6/EEC) on the other hand (Directive 2006/49/EC). These two Directives were officially adopted on 14 June 2006 and published in the Official Journal on 30 June 2006. Both Directives entered into force on 20 July 2006.

CRD II

On 16 September 2009, the Council and the European Parliament officially adopted Directive 2009/111/EC, which is part, together with Directives 2009/27/EC and 2009/83/EC, of the second legislative package aimed at ensuring the financial soundness of banks and investment firms.

CRD III

On 24 November 2010, the Council and the European Parliament officially adopted Directive 2010/76/EU on capital requirements for the trading book and for re-securitisations and the supervisory review of remuneration policies. Directive 2010/76/EU was to be implemented in two phases. The first, which affects the remuneration provisions, as well as a number of other ones dealing with the extension of some pre-existing minimum capital requirements, had to be implemented by 1 January 2011. The remaining provisions had to be implemented by 31 December 2011.

CRD IV

On 17 July 2013, the CRD IV package was transposed —via a Regulation (Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (CRR)) and a Directive (Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms)— the new global standards on bank capital (the

agreement) into EU law, entered into force. This is the current legislation on banking prudential requirements.

Assessment and criticism

Think-tanks such as the World Pensions Council have argued that European powers such as France and Germany pushed dogmatically and naively for the adoption of the Basel II recommendations, adopted in 2005, transposed in European Union law through the Capital Requirements Directive (CRD). In essence, they forced European banks, and, more importantly, the

European Central Bank The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...

itself, to rely more than ever on the standardised assessments of "credit risk" marketed aggressively by two US credit rating agencies—

Moody's Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides internationa ...

and S&P—thus using public policy and ultimately taxpayers' money to strengthen anti-competitive duopolistic practices akin to

exclusive dealing In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Austra ...

. European governments have abdicated most of their regulatory authority in favour of a non-European, highly

deregulated Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...

, private

cartel A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mos ...

References

{{reflist

Sources

* https://web.archive.org/web/20060711060130/http://ec.europa.eu/internal_market/bank/regcapital/index_en.htm * https://web.archive.org/web/20130627202127/http://ec.europa.eu/internal_market/bank/regcapital/legislation_in_force_en.htm

External links

Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms
(CRD IV) (as amended)
Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms
(CRR) (as amended) Financial regulation European Union directives 2006 in law 2006 in the European Union Banking in the European Union Capital requirement