Capital Requirements Directive
The Capital Requirements Directives (CRD) for the financial services industry have introduced a supervisory framework in the European Union which reflects the Basel II and Basel III 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 January 1, 2007. Institutions were allowed to choose between the initial basic indicator approach, that increases the minimum capital requirement in Basel I approach from 8% to 15% and the standardized approach that 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 for operational risk were available from January 2008. From this date, all concerned EU firms had to comply with Basel II.
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 Basel III, 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The Capital Requirements Directives superseded the EU's earlier Capital Adequacy Directive that was first issued in 1993.
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 itself, to rely more than ever on the standardized assessments of "credit risk" marketed aggressively by two US credit rating agencies—Moody's and S&P—thus using public policy and ultimately taxpayers' money to strengthen anti-competitive duopolistic practices akin to exclusive dealing. Ironically, European governments have abdicated most of their regulatory authority in favor of a non-European, highly deregulated, private cartel.
- Firzli, Nicolas J. (2011). "Bâle II et le risque de crédit: Les règles actuelles et leur évolution sous Bâle III" (PDF). Revue Analyse Financière (in French) (43).
- 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)
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