Edition 2020 Ninth edition

2.1.2. 
Valuation of Property for Credit Institutions
2.1.2.1. 
Banking capital requirements and regulation — The international Basel 
agreements seek to impose a prudent framework for banking and so set 
out basic rules for calculating the amount of capital that a credit institu-
tion should hold against its liabilities. In order to calculate the capital that 
a credit institution is required to hold, the regulators apply a ratio to the 
value of the available assets depending on the class of the assets. For this 
purpose, there are also rules for assessing values of property on which 
lending has been secured, as this is one of the major asset classes involved.
2.1.2.2. 
The EU has addressed these issues in successive legislation on capital re-
quirements. In 2013 the Capital Requirements Directive (CRD) IV package 
entered into force, comprising Directive 2013/36/EU and Regulation 
575/2013. This package provides a regulatory framework for credit insti-
tutions and their operation.
2.1.2.3. 
The Capital Requirements Regulation 575/2013 lays down the following 
rules regarding the valuation of assets when assessing compliance with 
the Basel capital requirements:

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VII. European Union Legislation and Property Valuation
European Valuation Standards 2020
•
It provides the definition of "Market Value" for the purposes of immov-
able property, as "the estimated amount for which the property should 
exchange on the date of valuation between a willing buyer and a willing 
seller in an arm's-length transaction after proper marketing wherein 
the parties had each acted knowledgeably, prudently and without being 
under compulsion" 
(Article 4(76))
;
•
It provides the definition of "mortgage lending value" as "the value of im-
movable property as determined by a prudent assessment of the future 
marketability of the property taking into account long-term sustainable 
aspects of the property, the normal and local market conditions, the 
current use and alternative appropriate uses of the property" 
(Article 4(74))
;
•
It defines an "independent valuer" as being "independent from the credit 
decision process"
 (Article 208(3)(b))
.