Adapting to a new regulatory framework: enhancing risk calculation and capital strategy for a large European systemic bank
Background
In response to financial crises and evolving market challenges, banking regulations have become increasingly stringent to ensure greater stability and risk management. Against this backdrop, CRR3, the third iteration of the European Union's regulatory framework for capital requirements (CRR), was introduced in early 2025, marking a significant shift in regulatory expectations. It requires banks to adjust their capital management strategies to meet stricter capital adequacy requirements.
Risk-weighted assets (RWA) play a critical role in capital management, as they directly impact the amount of capital a bank must hold. While awaiting the implementation of the target prudential chain to compute accurate RWA under the new requirements, ValueQuest supported a leading European bank in assessing the implications of CRR3 on their RWA and capital trajectory management. This mission was part of a broader CRR3 program, which also encompassed huge IT developments at both central and local (business units & entities) level to implement the new regulatory requirements.
Approach
An in-depth analysis of the bank's capital structure and RWA framework was conducted in collaboration with central and local teams to identify the areas most impacted by CRR3. This was achieved through the adaptation of a tactical simulation tool, to produce simulations at a very granular level.
During two years, simulations were periodically updated (at each quarterly closing date) and reviewed with business units, involving senior executives to foster appropriation of the norm, ensure endorsement of the figures and mitigate when possible the capital impact on their respective scopes.
As part of the CRR3 program, our team provided monthly reports to the Chief Risk Officer (CRO) and Chief Financial Officer (CFO) to align strategies with capital planning goals. A dynamic trajectory management model was developed to regularly update capital projections in accordance with the precisions brought by the regulatory authorities (the CRR3 framework has been finalised very lately). The team was also regularly solicited to compute and analyse CRR3 impacts on specific scopes or activities, supporting dedicated committees in making key decisions to ensure alignment with the evolving regulatory framework.
Outcome
The bank successfully aligned its capital management framework with CRR3, improving RWA calculation accuracy and strengthening capital trajectory management both at the central level and within business units. The deep understanding of the CRR3 regulation and the anticipation of its impact allowed the bank to drastically lower its own funds requirement (savings amounting to several billions of Euros).
Conclusions
This project highlighted the importance of preparing in advance for regulatory changes and adopting a flexible approach to capital management. ValueQuest’s expertise enabled the bank and its business units to gain a clearer understanding of CRR3 impact and explore potential mitigation strategies, such as requesting appropriate collaterals or adjusting their pricing - particularly for capital-intensive products. This support also ensured a smooth and compliant implementation aligned with supervisor’s (European Central Bank) expectations.
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