Capital Requirements Regulation
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The Capital Requirements Regulation (CRR) is a regulatory framework established by the European Union that sets out prudential requirements for banks and investment firms. It is part of the broader regulatory framework known as Basel III and complements the Capital Requirements Directive within the EU.
Capital adequacy: The CRR establishes minimum capital requirements that banks and investment firms must maintain to cover various types of risks, such as credit risk, market risk, and operational risk. It sets out the criteria for the calculation of capital ratios, including the Common Equity Tier 1 and total capital ratios.
Risk management: The CRR promotes effective risk management practices within financial institutions. It requires banks to establish robust risk management frameworks, including risk measurement, assessment, and mitigation processes. The regulation also sets out specific requirements for stress testing and risk concentration.
Liquidity requirements: The CRR introduces liquidity requirements to ensure that banks maintain sufficient liquidity to meet their short-term obligations. It includes the liquidity coverage ratio, which requires banks to hold a buffer of high-quality liquid assets to cover net cash outflows under a specified stress scenario. The regulation also sets out the net stable funding ratio, which aims to promote stable funding over the longer term.
Prudential reporting and disclosures: The CRR establishes reporting and disclosure requirements for financial institutions. Banks and investment firms must provide regular and comprehensive reports to their national supervisory authorities, including information on capital adequacy, liquidity, risk exposures, and asset quality. The regulation also requires public disclosure of certain information to enhance transparency and market discipline.
Large exposure limits: The CRR introduces limits on the exposure of banks to individual counterparties or groups of connected counterparties. These large exposure limits aim to mitigate concentration risk and promote diversification within banks' portfolios.
Consolidated supervision: The CRR establishes rules for the consolidated supervision of banking groups operating across multiple jurisdictions within the EU. It ensures that group-level capital and liquidity requirements are met and that risks are adequately monitored and managed at the group level.
The CRR harmonises prudential rules for banks and investment firms within the EU, ensuring a level playing field and enhancing the resilience of the financial system. It is applicable to all EU member states and provides a common regulatory framework for capital, liquidity, and risk management requirements.
Capital adequacy: The CRR establishes minimum capital requirements that banks and investment firms must maintain to cover various types of risks, such as credit risk, market risk, and operational risk. It sets out the criteria for the calculation of capital ratios, including the Common Equity Tier 1 and total capital ratios.
Risk management: The CRR promotes effective risk management practices within financial institutions. It requires banks to establish robust risk management frameworks, including risk measurement, assessment, and mitigation processes. The regulation also sets out specific requirements for stress testing and risk concentration.
Liquidity requirements: The CRR introduces liquidity requirements to ensure that banks maintain sufficient liquidity to meet their short-term obligations. It includes the liquidity coverage ratio, which requires banks to hold a buffer of high-quality liquid assets to cover net cash outflows under a specified stress scenario. The regulation also sets out the net stable funding ratio, which aims to promote stable funding over the longer term.
Prudential reporting and disclosures: The CRR establishes reporting and disclosure requirements for financial institutions. Banks and investment firms must provide regular and comprehensive reports to their national supervisory authorities, including information on capital adequacy, liquidity, risk exposures, and asset quality. The regulation also requires public disclosure of certain information to enhance transparency and market discipline.
Large exposure limits: The CRR introduces limits on the exposure of banks to individual counterparties or groups of connected counterparties. These large exposure limits aim to mitigate concentration risk and promote diversification within banks' portfolios.
Consolidated supervision: The CRR establishes rules for the consolidated supervision of banking groups operating across multiple jurisdictions within the EU. It ensures that group-level capital and liquidity requirements are met and that risks are adequately monitored and managed at the group level.
The CRR harmonises prudential rules for banks and investment firms within the EU, ensuring a level playing field and enhancing the resilience of the financial system. It is applicable to all EU member states and provides a common regulatory framework for capital, liquidity, and risk management requirements.
