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Capital Requirements Package and Banking Union – Influence on Croatian Banking Market

Financial crises in 2008 and, a few years later, sovereign debt crises accelerated tighter integration of European financial market and more profound compliance of prudent regulation for all banking systems. The new post-crisis risk regulatory Basel III rules were transposed to EU regulation in the so-called “banking package” consisting of Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD). The banking union for euro-area member states was developed as a foundation for uniformed application of the integrated framework and supranational supervision over the common market to avoid or, at least, minimize the cost of future crises. Concerning the recent Croatian accession to BU and planned close entrance to the euro area market, scheduled for January 2023, this article focuses on the current state of the banking union and the comparation of Croatian banking market indicators. Econometric analyses of banking sectors panel data of 19 euro-area member states for the period of 2014-2020 have been performed to analyse the impact of new risk capital requirements on the profitability of the euro area. Although the data show an overall decline in profitability ratios in the euro area in 2020, the research reveals a significant positive impact of capital strength on selected banking sector profitability ratios. The negative impact of T1 varies according to the measure of profitability used.

Banking union, CRR, CRD, bank profitability, Croatian banking market

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