Overview of Capital Requirements Directive IV Prudential Supervision: PART 2

The Capital Requirements Directive IV (Directive 2013/36/EU) (CRD IV) and the Capital Requirements Regulation (EU) (No 575/2013) (CRR IV)[1], provide a new regulatory framework governing the activity of credit institutions and investment firms (Institutions) in the European Union (EU). CRD IV Title VII[2] covers the new and in-depth Prudential Supervision requirements for Institutions.

Chapter 3 (Supervision on a Consolidated Basis)

This Chapter sets out the principles for conducting supervision on a consolidated basis, including procedures for identifying the consolidating supervisor and the coordination of supervisory activities by a consolidating supervisor. CRD IV, Article 115 sets out coordination and cooperation arrangements that are to be put in place in order to facilitate and establish effective supervision. Article 116 states that the consolidating supervisor must also establish colleges of supervisors in order to facilitate supervision arrangements. The operational functioning of the colleges of supervisors is now governed by Regulatory Technical Standards[3] and Implementing Technical Standards[4]. CRD IV, Article 117 stipulates that competent authorities are required to cooperate closely with each other, and provide each other with any information which is essential or relevant for the exercise of the other authorities’ supervisory tasks. Holding Companies (financial holding companies, mixed financial holding companies, mixed-activity holding companies) are included in consolidated supervision arrangements, and they and their effective managers will now be subject to administrative penalties or measures aimed at ending observed breaches (or the causes of such breaches) of CRD IV supervision rules.

Chapter 4 (Capital Buffers)

CRD IV introduces four new types of buffer, namely: (1) a ‘Capital Conservation Buffer’ (CC Buffer); (2) an ‘Institution-Specific Countercyclical Buffer’ (ISC Buffer); (3) a ‘G-SII Buffer’ (G-SII Buffer); and (4) an ‘O-SII’ (O-SII Buffer).  Institutions are required to maintain, in addition to Common Equity Tier 1 Capital (CET1 Capital) own funding requirements, a CC Buffer of CET1 Capital equal to 2.5% of their ‘Total Risk Exposure Amount’ (TREA)[5] on an individual and consolidated basis. Institutions must maintain an ISC Buffer equivalent to the TREA, and multiplied by the weighted average of the Countercyclical Buffer Rates (CB Rates)[6] on an individual and consolidated basis. Global Systemically Important Institutions (G-SIIs) and Other Systemically Important Institutions (O-SIIs) will be identified using the G-SII and O-SII Identification Methodologies, and will be subject to respective G-SII Buffers and O-SII Buffers consisting of supplementary CET1 Capital. O-SIIs will be required to maintain an O-SII Buffer of up to 2% of their TREA, on a consolidated, sub-consolidated, or individual basis. G-SIIs will be sub-categorised into five sub-categories. Category 1 G-SIIs will be subject to a buffer of 3.5% of their TREA; Category 2 G-SIIs require a 2.5% TREA buffer; Category 3 G-SIIs require a 2.0% TREA buffer; Category 4 G-SIIs require a 1.5% TREA buffer; and Category 5 G-SIIs require a 1.0%. Member States are also authorised to introduce a new ‘Systemic Risk Buffer’ of CET1 Capital specifically for the financial sector in one or more subsets of that sector, in order to mitigate or prevent long term non-cyclical systemic or macroprudential risks.

If you would like to discuss any of the implications of CRD IV on your business, or for more information on our CRD IV reporting solutions and prices, please email DataTracks at: enquiry@datatracks.eu.


[1] CRR IV provides detailed harmonised rules regarding new prudential requirements for credit institutions and investment firms. These broadly cover areas such as counterparty credit risk, leverage, capital (own funds and capital requirements), large exposures; liquidity (stable funding and liquidity coverage), and institutional disclosure.

[2] Articles 49-142.

[3] COMMISSION DELEGATED REGULATION (EU) 2016/98 of 16 October 2015 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards for specifying the general conditions for the functioning of colleges of supervisors,

[4] COMMISSION IMPLEMENTING REGULATION (EU) 2016/99 of 16 October 2015 laying down implementing technical standards with regard to determining the operational functioning of the colleges of supervisors according to Directive 2013/36/EU of the European Parliament and of the Council.

[5] Calculated in accordance with the requirements of Article 92(3) CRR IV.

[6] This means the rate that institutions must apply in order to calculate their institution-specific countercyclical capital buffer set out in Articles 136 and 137, or by a relevant third-country authority.

Schedule A Demo

Schedule A Demo