What is the output floor under CRR III?

Banks may compute part of their capital requirement with **internal models** (IRB for credit risk, internal models for market risk), which typically yield lower risk weights than the supervisory **standardised approaches**. The **output floor** sets a lower bound here: an institution's total risk-weighted exposure amount (TREA) **may not fall below 72.5% of the amount that would result from applying the standardised approaches in full**. The legal basis is **Art. 92 CRR III (Regulation (EU) 2024/1623)** ^[1].

The floor therefore caps not a single portfolio but the **model benefit at whole-bank level**. For model-intensive institutions — typically large, IRB-approved banks — it generally means higher risk-weighted assets and thus more capital to hold; for banks that already use mostly standardised approaches, the effect is small.

The floor is not switched on all at once. **Art. 465 CRR III** sets a multi-year path: **50% (2025) → 55% (2026) → 60% (2027) → 65% (2028) → 70% (2029) → 72.5% from 2030**. In calendar year 2026 the floor therefore stands at **55%**. In addition, a temporary cap (**125%**) on the floor-driven increase in risk-weighted assets applies until the end of 2029 ^[1].

Separate from this are the **distinct transitional arrangements** for individual exposure classes — for example the temporarily more favourable treatment of certain residential mortgages and unrated corporates, which can run until **2032**. These reliefs concern the risk weights themselves, not the output floor's phase-in path; when citing, the two timelines should be kept cleanly apart.

The output floor is the most politically contested element of the Basel III finalisation because it caps the benefit of internal models built up over decades. CRR III has applied since **1 January 2025**; the accompanying directive **CRD VI (Directive (EU) 2024/1619)** had to be transposed by 10 Jan 2026. For affected banks the floor measurably shifts capital planning over the coming years — a reason to track the related EBA standards and national transposition continuously.