Capital Requirements Directive and Spiral Death in the Financial Market: Lessons from the 2007-2008 Credit Crisis

This publication endeavours to answer the question: whether the Capital Requirements Directive (CRD) is going to accentuate 'spiral death' in the financial market. The study will focus on how the implementation of the fair value rule and the prudential supervision introduced by the CRD will affect the performance of financial institutions under the current market developments. The paper will also consider some objections to IASB 39.

The European financial sector saw in 2007 the introduction of new regulations under the Capital Requirements Directive, this new framework emerged in the wake of the US sub-prime crisis and, inevitably in an era of globalisation, is also affecting European economies.

The Capital Requirements Directive amalgamated two directives of the European Parliament and of the Council: Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions; both of the 14th of June 2006. This Directive came into force on 1st of January 2007, but full implementation was expected from January 2008.