European Implementation of Basel IV, the CRR III Finalised

The banking package consisting of the Capital Requirements Regulation (CRR III) and the Capital Requirements Directive (CRD VI) has been approved in Q4 2023 by the European co-legislators (Council of EU and European Parliament). Following the technical and linguistic examination of the final agreement by the institutions, which is the regular procedure for EU legislation, the texts are pending the final administrative steps before being published in the EU Official Journal (OJ). We are expecting the final publication in the OJ any time soon. The CRR III shall enter into force on the twentieth day following that of its publication in the OJ and it shall apply from 1 January 2025. 

The CRR III includes for the first time in European prudential regulation separate specific provisions for leasing and explicitly recognises in the regulation the high level of expertise and risk management developed by leasing companies in the EU.  

The CRR III contains a specific clause for leasing exposures (Article 495c) where the European Banking Authority (EBA) is mandated to adopt a report on leasing within 36 months after CRR III enters into force. The EBA is mandated to produce a report on leasing calibrations, including the standardised approach. Based on the EBA report findings and policy recommendations the European Commission must submit to the European Parliament and to the Council a legislative proposal specific on leasing by 31 December 2028. Leaseurope is currently in contact with the EBA in relation to this specific mandate and will provide support to the EBA on the drafting on this report.  

The new Article 495c also includes a 5-year phasing-in period, which applies to the new risk parameters for leasing when using internal models for the calculation of risk weights. This provision lowers the haircuts for assets leased, therefore allowing leasing companies to consider as secured a bigger part of the exposure than in regular loans. This recognises for the first time in prudential regulation the role of the physical collateral in leasing, positioning leasing as a more attractive product from capital perspective. 

Furthermore, the European SME supporting factor has been kept (Article 501). Under this provision SME exposures of up to EUR 2.5 million are subject to a 23.81% reduction in risk weighted exposure amount which is equivalent to a 76,19% risk weight, instead of 100%. In addition, for SME exposures of more than EUR 2.5 million, the part exceeding EUR 2.5 million should be subject to a 15% reduction in capital requirement, which is equivalent to 85% risk weight instead of 100%. Given the importance of SMEs in the leasing portfolios the maintenance of the supporting factor in the CRR III, is critical for the leasing industry to continue financing European SMEs with lower regulatory capital consumption. 

Leaseurope has also managed to secure in Article 124 (5a), that Real Estate leasing qualifies as exposure secured by immovable property, which recognises the leased asset as collateral reducing the risk weights for real estate leasing. 

Finally, the CRR III recognises the low risk of non-CRR regulated and supervised leasing companies in its (Article 121), 1a, which entails lower capital requirements for banks when providing funding to regulated and supervised leasing companies, therefore making it more attractive for banks to finance leasing companies.