Scope and purpose
The Capital Requirements Regulation (Regulation (EU) 575/2013, CRR) and the Capital Requirements Directive (Directive 2013/36/EU, CRD IV) together implement the Basel III standards in EU law. They form the prudential framework that applies to banks in normal times, defining how much and what quality of capital a bank must hold against its risks. The CRR is a directly applicable regulation containing the detailed, harmonised requirements — the single rulebook — while the CRD is a directive covering areas that need national implementation, such as authorisation, supervisory powers, governance and the capital buffers.
The CRR sets out the definition and composition of own funds, splitting regulatory capital into Common Equity Tier 1, Additional Tier 1 and Tier 2, and specifies minimum ratios measured against the total risk exposure amount. The CRD adds the combined buffer requirement — the capital conservation buffer, countercyclical buffer and systemic buffers — and the maximum distributable amount mechanism that restricts distributions when buffers are breached.
Relationship to resolution
The CRR/CRD framework supplies the building blocks the resolution regime relies on. MREL and TLAC are calibrated using CRR concepts: own funds instruments defined in the CRR count towards loss-absorbing capacity, eligible liabilities are defined partly by reference to CRR Art. 72b, and the largest banks' TLAC requirement lives in the CRR itself (Arts. 92a–92b). Capital buffers set under the CRD interact with resolution through the parallel M-MDA restriction on distributions when MREL is not met. In short, prudential capital and resolution loss-absorbing capacity are defined on a common measurement base.
Who is bound
The CRR applies directly to credit institutions and investment firms across the EU, while the CRD is transposed by Member States and binds supervisors and the institutions they oversee. Like the resolution framework, the prudential rulebook was updated by the 2019 banking package, which revised own funds, leverage and other requirements and embedded the TLAC standard for global systemically important institutions.
Relevance for banks and investors
For banks, the CRR/CRD dictate day-to-day capital adequacy, buffer levels and the consequences of falling short. For investors, the framework defines the capital instruments — CET1, AT1 and Tier 2 — that sit at the bottom of the creditor hierarchy and are first to absorb losses, and it provides the ratios (capital, leverage, buffers) used to judge a bank's resilience before any question of resolution arises.