Basel Committee finalizes the post-crisis reforms of Basel III

In December 2017 the Basel Committee on Banking Supervision issued a new document finalizing the Basel III reforms of the global regulatory framework for banks. The Basel Committee has started to publish the reforms since 2009 and many parts of that reform were already finished. The recent revisions seek to restore credibility in the calculation of risk-weighted assets (RWAs) and improve the comparability of banks’ capital ratios. They focus on:

• enhancing the robustness and risk sensitivity of the standardised approaches for credit risk, credit valuation adjustment (CVA) risk and operational risk;
• constraining the use of the internal model approaches, by placing limits on certain inputs used to calculate capital requirements under the internal ratings-based (IRB) approach for credit risk and by removing the use of the internal model approaches for CVA risk and for operational risk;
• introducing a leverage ratio buffer to further limit the leverage of global systemically important banks (G-SIBs); and
• replacing the existing Basel II output floor with a more robust risk-sensitive floor based on the revised Basel III standardised approaches for credit risk. The usage of internally-modelled approaches for certain risk categories is allowed (subject to supervisory approval). However, a jurisdiction which does not implement some or all of the internal-modelled approaches but instead only implements the standardised approaches is compliant with the Basel framework.

The Committee is introducing transitional arrangements to implement the new standards. The implementation date for most revisions is 1 January 2022, except for output for where the transitional arrangement will allow step-by-step increase from 2022 to 2027. Finally, banks' risk-weighted assets (RWAs) generated by internal models may not be lower than 72.5% of RWAs as calculated by the Basel III framework's standardised approaches in 2027.  

25-1-2018