Implementing Basel III through the Capital Requirements Directive (CRD) IV: leverage ratios and capital adequacy requirements

The Capital Requirements Directive (CRD) IV, which constitutes the Capital Requirements Regulation (CRR), as well as the Capital Requirements Directive (CRD), is aimed at implementing Basel III in the European Union. Consequently, this CRD package, replaces Directives 2006/48 and 2006/49 with a Regulation and a Directive. The significance of such a move not only highlights the awareness of the importance of ensuring that Basel rules and regulations become more binding and enforceable, but also signals an era whereby the use of enforcement and supervisory tools such as Binding Technical Standards (BTS) are being introduced and generated by the European Banking Authority, as its plays a crucial role in the implementation of Basel III in the EU. Another significance of such a move towards Basel rules and regulations becoming more enforceable and binding lies in the facilitation of greater consistency, convergence and compliance, which the introduction of a Regulation, Binding Technical Standards, as well as other reporting requirements and provisions would generate in the implementation process. The increased relevance of Basel rules, and particularly Basel III rules, as well as their significance for the Eurozone, European Union institutions and European banks is hereby emphasised. This paper is also aimed at providing an analysis of the recent updates which have taken place in respect of the Basel III Leverage Ratio and the Basel III Supplementary Leverage Ratio – both in respect of recent amendments introduced by the Basel Committee and proposals introduced in the United States. As well as highlighting and addressing gaps which exist in the literature relating to liquidity risks, corporate governance and information asymmetries, by way of reference to pre-dominant based dispersed ownership systems and structures, as well as concentrated ownership systems and structures, this paper will also consider the consequences – as well as the impact - which Basel III, and in particular, the recent Basel Leverage ratios could have on the Eurozone, and European financial institutions. From this perspective, the rise of macro economics, micro economic inefficiency debates - as well as the validity of such debates will be considered.