Implications and implementation
CRR III will have a major impact on banks‘ risk weighted assets. However, in contrast to CRR, the impact is unevenly distributed leaving some banks worse off than others:
1. Data compiled by the European Banking Authority (EBA) based on the Basel III Monitoring shows that the impact of CRR III will be unevenly distributed across time and banks:
- Because of the transitional provisions agreed at EU level, the impact of the entry-into-force in 2025 will be quite limited
- However, if looking at the fully phased-in rules, the combined capital shortfall of the banks within the EBA‘s sample increases significantly
Experience with CRR transitional provisions shows that both supervisors and market participants such as rating agencies focus on fully phased-in rather than transitional numbers.
While the numbers published by the EBA do cover only a small sample of EU banks, the results are vindicated by a number of much more granular test calculations performed by PwC.
2. Also, the use of internal models and corresponding applicability of the capital floor has a tremendous impact on the increase in capital requirements. In contrast, the impact on standardized banks is much more limited and not depending on transitional provisions
3. Finally, the relationship between the effort required for implementation and the impact on risk weighted assets differs from topic to topic and therefore from bank to bank
And of course, the impact of CRR III will go way beyond RWA calculation and regulatory reporting and will extend to Risk management, pricing and business strategy:
