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CRR3 is the EU's implementation of the Basel 2017 finalization package, and it applied from 1 January 2025 with one significant exception: market risk own-funds requirements were postponed. So the CRR3 changes that actually bit on day one are narrower than the package. What did take effect is the revised standardized approach for credit risk, the constrained IRB perimeter, the output floor at its opening 50% level, operational risk under the SMA with the internal loss multiplier switched off, and the revised CVA framework. This article covers each, the EU-specific deviations layered on top, and what is still pending.
Where does CRR3 sit in the EU rulebook?
Three package generations built the current law, and knowing which is which prevents most confusion about what applies when.
CRR/CRD IV (2013) delivered Basel III proper: the capital definition, the buffers, and leverage as a reporting requirement. CRR2/CRD V (2019) added the binding 3% leverage ratio, TLAC for G-SIIs, SA-CCR, FRTB as a reporting requirement, the codification of P2R and P2G, and the intermediate parent undertaking requirement for large third-country groups. CRR3/CRD VI (2024) is the Basel finalization implementation.
The split between the two instruments matters. The CRR is a Regulation, directly applicable in every member state with no transposition, and it carries own funds, RWA, leverage, large exposures, reporting and disclosure. The CRD is a Directive, transposed into national law, and it carries authorization, governance, buffers, Pillar 2 and supervisory powers. That division is deliberate: uniform arithmetic in the CRR, national-discretion territory in the CRD.
Note the application dates. CRR3 applied from 1 January 2025. CRD VI, carrying fit-and-proper harmonization and ESG in Pillar 2, applied from 11 January 2026; its third-country branch regime follows on 11 January 2027.
What changed in the standardized approach for credit risk?
CRR3 transposes the revised standardized approach with the granular real-estate treatment, transactor retail at 45%, the revised credit conversion factors including the 10% on unconditionally cancellable commitments (phased in from 0% through 2029 to the full 10% in 2033 under Article 495d), due-diligence obligations and the SCRA taxonomy for unrated banks.
Two structural EU choices are worth knowing, because both depart from the Basel text rather than merely transposing it.
Residential mortgages use loan-splitting, generalized. Rather than the whole-loan LTV table, the EU applies a 20% risk weight on the exposure up to 55% of the property value and the counterparty weight, typically 75% for retail, on the remainder. The whole-loan approach is reserved for income-producing exposures. Property values follow prudent valuation rules, with an option for member states to retain hard-tested values.
Equity moved to 250%, or 400% for speculative unlisted holdings, with a permanent but capped 100% for holdings under legislated programs. A transitional 100% applies to long-held strategic positions, phasing up to 250% by 2030 under Article 495a.
How did CRR3 change IRB?
The Basel constraints arrive essentially intact. Advanced IRB is withdrawn for exposures to banks and financial institutions and to corporates above €500m revenue, IRB is withdrawn entirely for equity, and input floors apply to bank-estimated parameters.
Less discussed is that CRR3 also liberalized at the edges. The old expectation of near-total IRB roll-out gave way to permanent partial use: banks may keep portfolios on the standardized approach by class without justifying exceptionality. That reflects a floor-era reality, namely that model coverage no longer monotonically reduces capital.
The EU also keeps a dense Level 2 and Level 3 canopy over IRB through the EBA's repair program, with guidelines on PD and LGD estimation, the default definition and downturn adjustment. That canopy has done as much as the Basel package itself to compress unwarranted RWA variability in Europe.
How does the output floor work under CRR3?
The floor is the single most consequential number CRR3 changes, and the EU made the strictest available choice about how to apply it: the floor bites on the total risk exposure amount, not on Pillar 1 alone, so everything stacked above it inherits the floored denominator. That choice, and the anti-double-counting valves it required, is its own subject.
Phase-in runs 50% in 2025, then 55%, 60%, 65%, 70%, reaching 72.5% in 2030, two years behind the Basel schedule.
Because the single stack bites hard, CRR3 wrote in anti-double-counting valves and asset-class transitionals:
- When the floor becomes a bank's binding constraint, the nominal P2R amount is frozen pending supervisory review, so a P2R calibrated against model-measured risks does not mechanically inflate.
- Designated authorities must review SyRB and O-SII calibrations to strip out double-counted systemic add-ons.
- Under Article 465, unrated corporates with modeled PD of 0.5% or below may be weighted 65% for floor purposes, and low-risk residential mortgages get a preferential floor treatment of 10% on the portion up to 55% of property value under low-loss conditions. Both run to end-2032, with review clauses and possible extension.
Read the Article 465 transitionals precisely, because they are widely misdescribed. They change the standardized comparator inside the floor formula, not the actual standardized requirement of a bank that uses the standardized approach.
How Do Capital Requirements Differ Across Basel, the EU, the UK and the US?
What changed for operational risk?
CRR3 implements the standardized measurement approach and exercises the available national discretion at Union level: ILM = 1 for all institutions. Operational risk capital is therefore the Business Indicator Component alone, a pure scale charge.
Loss-data obligations survive, covering collection, thresholds, governance and reporting, with annual loss disclosure in substance for institutions with a business indicator above €750m. Those obligations feed Pillar 2 and supervision rather than Pillar 1.
The choice bought comparability and spared banks carrying legacy loss histories. The cost is that the EU's operational risk charge is risk-insensitive by construction.
What happened to CVA?
CRR3 adopts the revised BA-CVA and SA-CVA framework while retaining the EU's exemptions from CVA capital for transactions with sovereigns, non-financial counterparties below the EMIR clearing threshold, pension scheme arrangements and intragroup counterparties. These are longstanding, RCAP-flagged, and defended as protecting end-user hedging.
The concession to critics is transparency rather than capital: banks must calculate and report the hypothetical CVA capital on exempted trades, so supervisors and the EBA's aggregate statistics can see the foregone requirement even though it is not charged.
Which supporting factors survived?
Two multiplicative discounts survive CRR3 against Basel's letter and the RCAP's objections, and both apply across the standardized and IRB approaches:
- the SME supporting factor under Article 501, at 0.7619 on exposures up to €2.5m and 0.85 above;
- the infrastructure supporting factor under Article 501a, at 0.75 for qualifying infrastructure project finance.
Every renegotiation has widened rather than narrowed them, and they are analytically awkward for an obvious reason: capital relief calibrated to a policy objective rather than to measured risk is exactly what the framework forbids elsewhere. They are the cleanest illustration of what co-decision does to a Basel text.
Which CRR3 changes are still not in force?
Market risk own-funds requirements. The FRTB texts sit in the CRR as the alternative standardized approach and the alternative internal model approach, complete with boundary, desk regime, PLA and NMRF machinery, but they apply as binding own-funds requirements only from 1 January 2027, after two postponements.
Be careful how you read that date, because 2027 is not when FRTB starts to cost anything. Commission Delegated Regulation (EU) 2026/1221, published in the Official Journal on 11 September 2026, pairs the 2027 start with temporary relief: a targeted multiplier lets affected banks scale the market-risk requirement, calculated after the output floor, back toward pre-FRTB levels until 31 December 2029, alongside targeted operational relief for the standardized and internal model approaches. The multiplier is designed so that even after application the net requirement initially reproduces the old one. Until 2027 banks compute market risk own funds under the CRR2 framework, which is Basel 2.5, while reporting FRTB figures in parallel.
Two proportionality carve-outs sit alongside: banks with small trading-book business, meaning €50m or less and under 5% of total assets, may treat trading positions under credit risk rules, and those below €500m and 10% of total assets may use the simplified standardized approach, which is the recalibrated Basel 2.5 ruleset.
The output floor itself is also back on the table. The Commission's 17 July 2026 communication on the competitiveness of the EU banking sector commits to assessing the floor and the Article 465 transitionals for mortgages and unrated corporates, with a first package of proposals expected in the first quarter of 2027. Until legislation follows, the CRR3 schedule stands.
Key takeaways
- CRR3 applied 1 January 2025; CRD VI from 11 January 2026, with third-country branches from 11 January 2027; market risk own funds only from 1 January 2027, and then under a multiplier, running to end-2029, that initially reproduces the pre-FRTB requirement.
- The revised standardized approach arrived with two EU signatures: generalized loan-splitting for residential mortgages at a 20% weight up to 55% of property value, and equity at 250%.
- IRB is constrained as Basel intended but liberalized through permanent partial use.
- The output floor applies to TREA itself, the single stack, with phase-in to 72.5% in 2030 and Article 465 transitionals to end-2032 that adjust the comparator rather than the standardized requirement. The Commission has put the floor under review, with proposals expected in 2027.
- Operational risk runs ILM = 1, so the charge is the Business Indicator Component alone.
- The CVA exemptions survive with a new obligation to report the capital not being charged.
- The SME and infrastructure supporting factors survive as the EU's signature deviations, and are politically untouchable.
For the complete capital stack, from CET1, buffers and the output floor to Pillar 2 and MREL, and how Basel, the EU, the UK and the US implement them, see Mirai RiskTech's guide capital regulation across Basel, the EU, the UK and the US: a complete reference.
