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Practice paper

CRD V/CRR II: A comprehensive synopsis of the first European step towards implementing Basel IV (Part II)

Martin Neisen and Hermann Schulte-Mattler
Journal of Risk Management in Financial Institutions, 13 (3), 224-241 (2020)
https://doi.org/10.69554/MZKG2755

Abstract

Two banking packages are needed in Europe to implement the Basel recommendations of the standard ‘Basel III: Finalising post-crisis reforms’ into European supervisory regulation. The Basel Committee on Banking Supervision (BCBS) and European supervision use the abbreviation ‘Basel III’ for the reforms. They thus give the impression to those unfamiliar with the subject that the supervisory authority is merely updating and expanding the approaches and ideas published in the Basel III papers of 2010 in response to the financial crisis of 2007/2008. In the overall picture, however, this is not the case. In addition to the usual updating of known standards, the supervisory authority is introducing a large number of entirely new approaches and regulations that did not exist in this form previously. Banking sector is rightly using the term ‘Basel IV’ instead of ‘Basel III’ for this regulatory change package, which is the most comprehensive ever at both the international and European levels. The first European banking package was adopted in June 2019 and is currently being implemented. It is also known as the ‘CRD-V-CRR-II package’, as it makes significant changes to the capital requirements directive (CRD) and capital requirements regulation (CRR) in particular. This paper — like Part I which appeared in Journal of Risk Management in Financial Institutions Vol. 13, 2 — analyses the remarkable changes that will pose notable challenges for many banks. We use a four-pillar concept to differentiate the most critical issues. The publication of the second European banking package for the full implementation of Basel IV is still pending. The contents of the ‘CRD-VI-CRR-III package’ will therefore only be analysed at a later date.

Keywords: AIFs; Basel III finalisation; fundamental review of the trading book (FRTB); interest rate risk in the banking book (IRRBB); minimum requirements for own funds and eligible liabilities (MREL); standardised approach for measuring counterparty credit risk (SA-CCR); STS securitisations; UCITS funds

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Author's Biography

Martin Neisen is a Partner in the Regulatory Management department and a Global Basel IV Leader at PricewaterhouseCoopers (PwC) in Frankfurt am Main, responsible for coordinating PwC’s initiatives with respect to Basel IV implementation. These initiatives cover all aspects regarding the impact and execution of Basel IV, including strategic implications, standardised approaches, internal models, business implications, IT (information technology) as well as knowledge management. He leads the Regulatory Management department in PwC Europe.

Hermann Schulte-Mattler is a Professor of Finance at the Dortmund University of Applied Sciences. Previously he worked for many years in the banking regulation division of the Federal Association of German Banks. Following studies in Economics at the University of Duisburg-Essen and Ohio State University and subsequent employment at a major bank, he studied in the PhD finance programme at the Wharton School at the University of Pennsylvania. He is the author of an extraordinary number of publications on the topic of international harmonisation of banking supervision rules and risk management. Furthermore, he is the co-publisher of a leading commentary on the German Banking Act and implementing regulations.

Citation

Neisen, Martin and Schulte-Mattler, Hermann (2020, June 1). CRD V/CRR II: A comprehensive synopsis of the first European step towards implementing Basel IV (Part II). In the Journal of Risk Management in Financial Institutions, Volume 13, Issue 3. https://doi.org/10.69554/MZKG2755.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 13 / Issue 3
© Henry Stewart
Publications LLP

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