The second way in which the credit cycle can be moderated is by limiting leverage by households and non-financial corporations. With regard to the banking sector, the Capital Requirements Regulation (CRR) and Directive (CRD IV) play a prominent role in setting the prudential standards for credit institutions and investment firms in the EU. Implementation is ongoing and expected to be completed by 2019.
From January 2016, the countercyclical capital buffer (CCB), the systemic risk buffer (SRB) and the other systemically important institutions (OSII) buffer have been operational. Given the need to diversify the available tools beyond regulations based on capital, tools based on liquidity, leverage and funding sources are also being introduced.