03 · Standardised approach — credit risk

Art 111–141 CRR

Purpose & history

From address book to instrument panel

Basel I weighted by who (sovereign, bank, mortgage, other); Basel II added rated how (ECAI grades); CRR3's SA finally asks what and how risky — LTV bands for property, project phase for specialised lending, transactor behaviour for cards, assessed counterparty grades for unrated banks. The redesign had one strategic driver: the output floor needs a yardstick credible enough that being floored to it is defensible. A second driver is jurisdictional: the US cannot use external ratings (Dodd-Frank §939A), so the framework had to work both with ratings (EU: ECAI + due diligence) and without (SCRA) — the same rule text carrying two philosophies.

The due-diligence overlay is the quiet novelty: banks must assess whether the external rating flatters the obligor and may only adjust the weight upward. Mechanistic reliance on ratings — the 2008 charge — is now formally the bank's problem.

Requirements

ECAI governanceNominated ECAIs, consistent use per class, the mapping ITS applied; issue vs issuer rating logic implemented.

Due diligence (Art 79 CRD / 111a)Documented counterparty review beyond the rating; upward-only overrides with an audit trail.

Property dataETV at origination (value capped at origination level, indexation within limits), independent valuation, energy/renovation data increasingly requested alongside.

Behavioural flagsTransactor status (12-month repayment evidence), currency-mismatch identification for the Art 123a multiplier.

SCRA assessmentsGrade A/B/C files for unrated bank counterparties — capital and buffer compliance evidence from the counterparty.

Classification governanceIPRE vs owner-occupied, ADC with pre-sale evidence, subordination identification — each moves the weight by 50%+.

Calculations

Retail card book — the transactor discount €500m limits, 60% drawn: transactors (€120m drawn) @ 45% = €54m · revolvers (€180m) @ 75% = €135m · undrawn €200m × CCF 40% × 75% = €60m → RWA €249m. The flag alone is worth 30 points on the drawn transactor book.

SCRA — unrated bank €20m senior, 6-month, counterparty meets buffers → Grade A: 40%, short-term 20% → RWA €4m. Grade B (minima only): 75%; Grade C: 150%.

Subordinated & equity €5m sub debt: 150% → €7.5m · €5m equity: 250% (400% speculative unlisted; phase-in applies) → €12.5m.

Income-producing real estate €10m IPRE loan, ETV 70% → whole-loan table: RW 70% (materially dependent) → RWA €7m vs 37% avg for owner-occupied loan-splitting at the same ETV — dependence on the asset's cash flow is the pricing line.

ADC — the pre-sale relief €10m residential development: 150% → €15m; with qualifying pre-sales/equity: 100% → €10m.

Covered bond €10m CQS1 covered bond: 10% → RWA €1m — the cheapest private credit weight in the framework.

Changes & sources

Area	CRR2 → CRR3
Mortgages	35% flat → loan-splitting 20/75 or ETV whole-loan; IPRE own table
Banks	Unrated: flat by sovereign → SCRA A/B/C; CQS2 30%
Corporates	Unrated IG 65% only inside the floor transitional; SME 85% retained via factor
Retail	Transactor 45%; currency-mismatch ×1.5
Equity/sub-debt	100% → 250/400% (phase-in) / 150%
Off-balance	UCC 0% → 10% (phased); CCF ladder rebuilt

Sources: Art 111–141; mapping ITS; EBA GL on transactors and IPRE dependence tests. Watch: unrated-corporate transitional review — the SA's biggest EU-vs-Basel gap.

Independent analysis by Elderlake Partners, as at August 2026. Not legal, accounting or supervisory advice.