Financial Services Advisory

CRD V Package

Ciaran Rogers Ciaran Rogers

Following the signature of the adopted ‘CRD V’ legislation in May, the banking package was published in the official journal on 7 June and will come into effect 20 days later. The ‘CRD V Package’ includes an amendment to Directive 2013/36/EU (CRD IV) and Regulation 575/2013 (CRR) and is the EU’s final step to implement the Basel III standards. Also included in the CRD V package are modifications to the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation in order to incorporate international standards on Total Loss-Absorbing Capacity (TLAC).

The main topics of the CRD V package are:

New binding pillar 1 requirements:

  • minimum 3% leverage ratio with adjustments to the exposure measure, for example, for public lending; and
  • minimum 100% net stable funding ratio alongside a harmonisation of the calibration of the required stable funding factor.

Strengthened market risk requirements and large exposure standards:

  • following Basel guidance on the fundamental review of the trading book, capital requirements for market risk are revised and a new standardised approach for counterparty credit risk is proposed; and
  • large exposures regime making only tier 1 capital eligible and introducing a cap of 15% for global systemically important institutions’ exposure to other G-SIIs.

Updates to the resolution regime:

  • minimum requirement for own funds and eligible liabilities aligned to the TLAC standards;
  • more procedural clarity regarding the liquidation of subsidiaries or entities by defining ‘resolution groups/entities’;
  • additional clarity on the resolution of institutions operating in third countries; and
  • harmonisation of the creditor hierarchy in case of insolvency.

Other changes:

  • EU specific topics such as the extension of the use of the SME supporting factor and preferential lending for infrastructure projects, more waivers from capital and liquidity requirements for subsidiaries across member states and the requirement of an intermediate parent undertaking if third country parent institutions exist;
  • proportionality: definition of ‘small and non-complex banks’ accompanying simplified disclosure and reporting requirements;
  • introduction of environmental, social and governance risks into the prudential framework;
  • proposal to not subject prudently valued software assets to deduction of intangible assets in CET 1; and
  • in relation to QCCP exposures, clarification now provided that cash transactions are now out of scope of the CCP framework