What CRR3 is
Regulation (EU) 2024/1623 amends the Capital Requirements Regulation and applies from 1 January 2025 for credit risk, the output floor, CVA and operational risk. The market risk framework under the fundamental review of the trading book was postponed and applies later.
For credit risk the reform is not a new formula. It is a set of changes around the formula: floors, scaling, the standardised approach and a floor on total modelled RWA.
The 1.06 scaling factor is removed
Under CRR, the IRB risk weight was multiplied by 1.06. CRR3 removes that factor. For a corporate exposure with PD 1% and LGD 40%, the risk weight falls from 87.0% to 82.06% before any other change, which is the single largest difference between the two regimes in this calculator.
PD and LGD floors are higher
CRR3 raises the floors applied to modelled inputs. A floor stops a model from claiming an implausibly low default rate or recovery loss. The effect is largest where PD is very low: at the bottom of the range, the CRR3 risk weight can be higher than under CRR even though the 1.06 factor is gone, because the floor now binds.
The calculator shows both regimes. Switching the version selector is the fastest way to see where the two curves cross.
The output floor phases in
The output floor limits how far internal models can reduce total risk-weighted assets below the standardised result. It applies at the level of the institution, not to a single exposure, and it starts at 50% in 2025, rising by five percentage points a year to 72.5% in 2030.
For a single exposure the floor is invisible. For a bank with a large modelled portfolio it can be the binding constraint, which is why IRB benefits are worth less in practice than the formula alone suggests.
Standardised approach changes
CRR3 changes several standardised weights. Real estate exposures move to a loan-splitting treatment based on loan-to-value, so the weight depends on the LTV of each portion rather than a single number for the whole loan. The treatment of unrated corporates and specialised lending also changes, subject to due diligence conditions.
Because these weights are prescribed in the regulation, the standardised calculator is the place to check a specific exposure class.
What did not change
- The structure of the IRB formula: one-factor model, 99.9% confidence level, correlation as a function of PD.
- The 8% Pillar 1 minimum and the 4.5% common equity tier 1 minimum.
- The role of maturity: still applied to corporates, still absent from retail.
- The SME firm-size adjustment in the corporate formula.
What to check in a CRR3 number
- Which regime produced it: the same inputs give different results.
- Whether a floor is binding, especially at low PD.
- Whether the exposure is in scope of the output floor at institution level.
- Whether a supporting factor applies; the calculator applies none.
Questions
When does CRR3 apply?
Credit risk, the output floor and several other parts apply from 1 January 2025. The trading book review was postponed.
Is the 1.06 factor still applied?
No. CRR3 removes it, so the same PD and LGD produce a lower risk weight than under CRR, unless a floor takes over.
Does the output floor change a single exposure?
No. It applies to total risk-weighted assets at institution level.