An Analytical Review of how the CRR3 Reshapes Credit Risk Measurement and Capital Requirements for EU Banks

This article examines the credit risk dimension of the Capital Requirements Regulation 3 (CRR3), which came into effect in the European Union (EU) in January 2025. Building on previous frameworks (CRR1 and CRR2), the CRR3 introduces a series of reforms aimed at enhancing risk sensitivity, particularly for banks using the standardized approach. The paper begins with a literature review that contextualizes the CRR3 within the historical evolution of financial regulation and highlights key academic debates on capital adequacy, regulatory effectiveness, and risk–weight design. It then presents an in–depth analysis of the credit risk–related changes under the CRR3, including the introduction of new exposure classes, revised risk weights, stricter rules on property valuation, internal due diligence requirements, and the updated treatment of off–balance–sheet exposures and currency mismatches. The findings suggest that the CRR3 marks a significant step toward a more risk–sensitive and resilient regulatory framework, while also presenting operational and compliance challenges for European banks. The article concludes by reflecting on the implications of the CRR3 for future regulatory developments and financial stability in the EU.