Basel III Implementation Germany: CRR III, BaFin & KWG Compliance

CRR III (Regulation EU 2024/1623) applies from 1 January 2025 and revises the credit risk standardised approach (SA), introduces the new standardised measurement approach for operational risk (SMA), tightens CVA requirements and starts the output floor at 50%. First reports were due by end of June 2025. German institutions must additionally observe two member state options that took effect retroactively from 1 January 2025.

The output floor limits the benefit of internal models (IRB) over the standardised approach. It rises stepwise from 50% (2025) to 72.5% (2030). IRB banks with low risk weights (particularly in real estate and SME lending) face significantly higher capital requirements. BaFin has already reduced the systemic risk buffer for residential mortgages from 2.0% to 1.0% to cushion the impact.

The revised Capital Requirements Directive CRD VI applies from 11 January 2026 and must be transposed into national law, particularly through amendments to the German Banking Act (KWG) and the Solvency Regulation. CRD VI covers fit-and-proper requirements, ESG risk management, third-country branches and expanded supervisory powers for BaFin in the SREP process.

BaFin as the national supervisory authority is responsible for transposing CRD VI into German law and monitoring CRR III compliance. It sets the countercyclical capital buffer, systemic risk buffer and SREP add-ons. BaFin also reviews IRB model applications, supervises disclosure obligations and coordinates with ECB Banking Supervision (SSM) for significant institutions.

The revised SA under CRR III differentiates risk weights more granularly by exposure class: residential mortgages receive 20%–70% depending on loan-to-value, commercial real estate 60%–150%, unrated corporates 100%. New categories such as specialised lending and infrastructure loans receive dedicated weightings. This is particularly relevant for German banks on the SA, as approximately 60% of all institutions use this approach.

Germany exercises specific member state options under CRR III, for instance in the treatment of real estate loans and promotional loans. BaFin has already adjusted the systemic risk buffer for residential property. The three-pillar structure of the German banking system (private banks, savings banks, cooperative banks) also shapes the impact: savings and cooperative banks on the SA are affected differently than large banks using IRB approaches.

CRR III and CRD VI significantly expand ESG requirements: institutions must integrate ESG risks into risk management, fulfil Pillar III disclosure obligations and report to supervisors. From 2025, new reporting templates apply for climate-related risks. BaFin has also formulated its own ESG risk management expectations (7th MaRisk amendment) that go beyond EU minimum requirements.

ADVISORI guides German banks, savings institutions and financial service providers through complete CRR III and CRD VI implementation: gap analysis of existing processes, implementation of new SA/IRB calculations, output floor simulation, SREP preparation, ESG risk integration, BaFin reporting and specialist team training. Our consultants combine regulatory expertise with technical implementation capability for SAP, Abacus and other banking systems.