Essential Solutions for the Basel Framework
Explore changes to the Basel regulatory capital framework and solutions designed to make the transition straightforward.
Are You Ready for the Updated Basel Framework?
The Basel Framework is the full set of standards developed by the Basel Committee on Banking Supervision (BCBS), which is the primary global standard setter for the prudential regulation of banks. Basel III is an internationally agreed set of measures that aims to strengthen the regulation, supervision, and risk management of internationally active banks. National regulators in the U.S., U.K., Europe, and elsewhere are rolling out the ‘final’ component of the Basel III reforms, also known as Basel IV or the Basel ‘endgame’, over multiple years, with key implementation dates looming in several jurisdictions in 2025.
What is Changing?
Basel will help reduce the excessive variability of risk weighted assets (RWA) and restore credibility in banks reported regulatory risk capital ratios by:
- Enhancing the robustness and risk sensitivity of the standardized approach (SA) for credit risk, credit valuation adjustment (CVA), and operational risk.
- Placing limits on certain inputs used to calculate capital requirements under the internal ratings-based (IRB) approach.
- Including a risk-sensitive output floor to limit variability in how banks calculate RWAs.
- Removing the Advanced IRB (A-IRB) approach from certain asset classes.
- Introducing a single risk-sensitive SA to the calculation of operational risk capital.
- Introducing a leverage ratio buffer for Global Systemically Important Banks (G-SIBs) and making refinements to the definition of the leverage ratio exposure measure.
Standardized Credit Risk Assessment Approach (SCRA)
An important element of the revised SA is a more granular approach for unrated exposures to banks and corporates. Basel III introduces the SCRA for entities that are not rated and for all bank exposures of banks operating in jurisdictions where regulators do not allow the use of external ratings. The SCRA approach requires banks to classify bank exposures into one of three risk grades.
Solutions to Tackle SCRA Challenges
Solutions to Tackle FRTB SA
Basel Insights
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