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Prudential requirements

Prudential requirements aim to make the financial sector more stable, while ensuring it is able to support households, firms, and other end-users of financial services.

What the EU is doing and why

The EU prudential requirements that were introduced in the aftermath of the global financial crisis ensure that banks are better able to withstand liquidity shocks and absorb losses.

These rules, which are part of the EU single rulebook, aim to strengthen the resilience of the EU banking sector, while ensuring that banks continue to finance economic activity and growth.

The prudential framework is composed by a Directive – the Capital Requirements Directive (CRD V) – and a Regulation – the Capital Requirements Regulation (CRR II). These rules implement the Basel III international standards into EU law.

International banking regulation standards under Basel III

The Basel Committee on Banking Supervision (BCBS) sets the standards for international banking prudential regulation. It is a forum for cooperation on the supervision of the banking system and its membership is made up of central banks and supervisory authorities from 28 jurisdictions.

The Basel rules are non-legally binding international standards and are designed for “internationally active banks”. The EU implementation of Basel III is in the form of binding EU law. The EU has made the conscious choice to apply the Basel standards to all EU banks (as well as investment firms), because of our ambition to build a strong single market for all EU domiciled banks, active within and across our 27 EU Member States and also globally.

The EU has actively contributed to developing the BCBS standards on capital, liquidity and leverage. The rules introduced in the EU respect the ambition of the Basel III framework, but require tailoring the Basel standards where appropriate to fit the diversity of the banking system at EU and national level and to address proportionality concerns as regards smaller and domestically-oriented banks.

Policy making timeline

  1. 21 October 2019
    Consultation - Alternative standardised approach for market risk
  2. 11 October 2019
    Consultation - Basel III
  3. 20 May 2019
    Legislation - Prudential requirements
  4. 7 December 2017
    Agreement - Basel III
  5. 23 November 2016
    Legislative proposal - Prudential requirements
  6. 26 June 2013
    Legislation - Prudential requirements
  7. 25 March 2013

Relevant legislation