00 · The framework & the pipeline

What the framework is for

Prudential capital regulation answers one question: how much loss can this bank absorb before depositors, the deposit-guarantee scheme or the state absorb it instead? Everything on this chart is machinery for that answer. The denominator (sections 02–07) converts every exposure into a common risk currency — risk-weighted assets — so that a mortgage, a swap, an operational failure and a securitisation tranche can be added together. The numerator (section 01) defines what counts as loss-absorbing. The ratios and buffers set how much of the latter must stand against the former, and Pillar 2 (section 08) patches what the standardised machinery cannot see.

The design tension running through all of it: risk sensitivity vs comparability. Sensitive measures (internal models) fit capital to actual risk but destroy comparability and invite gaming; crude measures (leverage ratio, SMA, output floor) are comparable and robust but misprice individual portfolios. Basel III's finalisation is best read as a deliberate rebalancing from the first toward the second, after two decades of drift the other way. Where a rule seems clumsy, look for the comparability argument — it is usually there.

How EU law is layered

Level 1: the CRR (directly applicable regulation — the calculations) and the CRD (directive — supervision, buffers, governance, transposed nationally). Level 2: Commission delegated and implementing acts, mostly drafted by the EBA as RTS/ITS — where the operational detail lives. Level 3: EBA guidelines and Q&As — formally comply-or-explain, practically binding. A CRR article is the start of the law, rarely the end of it.

Five accords in one line each