This makes it even more important that the impact of CRR3 is correctly assessed and carefully calibrated, so that it is designed and implemented in a way that does not, unintentionally, constrain banks’ ability to support the economy.

At the same time CRR3 needs to be considered in the context of EU’s urgent priorities to complete the Banking Union, reduce fragmentation of financial markets and develop and deepen Europe’s capital markets through the establishment of a genuine Capital Markets Union.

In this publication, drafted in cooperation with ISDA, we present our recommendations for a CRR3 that is faithful to the overarching objectives contained in Basel III but which at the same time reflects the priorities outlined above.

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As the European Commission and the EU legislators are preparing to start their work on the next bank capital legislative
package, the sixth Capital Requirements Directive and the third Capital Requirements Regulation (CRD6/CRR3), AFME is
pleased to present its views and recommendations on key priority areas.

This legislative proposal is expected to be published in mid-2021 and will implement the final elements of the Basel III
framework agreed in December 2017 by the Basel Committee on Banking Supervision. Additional issues are also likely to be
included in the reform package.

The Covid-19 pandemic has caused an unprecedented economic shock both in Europe but also well beyond. Fortunately,
due to the multiple areas of progress since the last financial crisis, banks entered the current downturn in robust financial
health. Together with significant fiscal and monetary support from the EU authorities, national governments and central
banks, as well as flexibility from regulators and legislators, this has allowed banks to play a pivotal role in helping their
customers to raise funding in banking and capital markets or to otherwise manage their debts through the implementation
of moratoria. Collectively this support has helped to cushion the impact of the severe downturn on individuals, companies
and the economies in which they operate.

The CRR3 proposal will therefore come at an important juncture when policymakers while still dealing with the fallout from
the Covid-19 crisis are also beginning to consider the tools that are necessary to ensure a strong and sustained economic
recovery. This makes it even more important that the impact of CRR3 is correctly assessed and carefully calibrated, so that
it is designed and implemented in a way that does not, unintentionally, constrain banks’ ability to support their customers
and the economic recovery.

The EBA’s evaluation of the Basel III proposals shows Europe’s largest banks, which account for most of the region’s assets,
are still facing a minimum increase of approximately 20% in their capital requirements from the European implementation
of Basel III. This estimate, which already runs counter to the G20 and EU commitment of no significant increase in capital
requirements, takes no account of the higher actual levels of capital that banks must hold and being based on 2019 data
excludes any detailed quantification of Covid-19. It is therefore likely to underestimate the full impact on banks.

At the same time CRR3 needs to be considered in the context of EU’s urgent priorities to complete the Banking Union,
reduce fragmentation of financial markets and develop and deepen Europe’s capital markets through the establishment of
a genuine Capital Markets Union.

In this publication we present our recommendations for a CRR3 that is faithful to the overarching objectives contained in
Basel III for resilient and comparable banking systems but which at the same time reflects the priorities outlined above and
certain European specificities......

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