The overarching goal of the so-called Basel III agreement and its implementing act in Europe, the so-called CRD IV package, is to strengthen the resilience of the EU banking sector so it would be better placed to absorb economic shocks while ensuring that banks continue to finance economic activity and growth.

The European Banking Authority (EBA) will play a key role in the implementation of the new regulatory framework in the European Union.

What is Basel III?

"Basel III" is a comprehensive set of reform measures in banking prudential regulation developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:

  • improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source
  • improve risk management and governance
  • strengthen banks' transparency and disclosures.

The Basel III agreement was endorsed by the G20 in November 2010.

Basel III overview table

The implementation of Basel III in Europe: the CRD4 package

In 2013, the European Union adopted a legislative package to strengthen the regulation of the banking sector and to implement the Basel III agreement in the EU legal framework. The new package replaces the current Capital Requirements Directives (2006/48 and 2006/49) with a Directive and a Regulation and is a major step towards creating a sounder and safer financial system.

The Regulation contains the detailed prudential requirements for credit institutions and investment firms while the new Directive covers areas of the current Capital Requirements Directive where EU provisions need to be transposed by Member States in a way suitable to their respective environment.

The package applies as of 1 January 2014. Some of the new provisions will be phased-in between 2014 to 2019.

The EBA's role and tools

The European Banking Authority (EBA) plays a key role in the implementation of the Basel III framework in the European Union.

While it provided expert technical advice to the EU institutions during the legislative process, the EBA is now mandated to produce a number of Binding Technical Standards (BTS), Guidelines and reports for the implementation of the CRD IV/CRR package.

BTS are legal acts which specify particular aspects of an EU legislative text (Directive or Regulation) and aim at ensuring consistent harmonisation in specific areas. BTS are always finally adopted by the European Commission by means of Regulations or Decisions. According to EU law, Regulations are legally binding and directly applicable in all Member States. This means that, on the date of their entry into force, they become part of the national law of the Member States and their implementation into national law is not only unnecessary but also prohibited.

Guidelines are an important tool for fostering convergence of supervisory practices across the EU. Although they are not legally binding, supervisory authorities and institutions around Europe must make every effort to comply with them. Supervisory authorities, in particular, are obliged to inform the EBA of their compliance or intention to comply with them and to also explain the reasons for an eventual non-compliance.

Finally, the EBA has the mandate to produce a number of reports aimed at evaluating or assessing the impact of several provisions included in the legislative text, such as the implementation of a leverage ratio in Europe or the evaluation of the impact of the new provisions on lending to small and medium enterprises (SMEs).

Basel III monitoring exercise

In order to assess the impact of the full implementation of the new Basel III framework on the European banking system, the EBA conducts, on a semi-annual basis (with data as of end-June and end-December), a monitoring exercise on a sample of EU banks.

The exercise is conducted on a voluntary basis.

More info on the Basel III monitoring exercise