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From Wikipedia, the free encyclopedia

Basel IV is a contested term[1] for the changes agreed in 2016 and 2017 to the international banking standards known as the Basel Accords. Regulators argue that these changes are simply completing the Basel III reforms, agreed in principle in 2010–11, although most of the Basel III reforms were agreed in detail at that time.[2] The Basel Committee (BCBS) itself calls them simply "finalised reforms".[3] Critics of the reform, in particular those from the banking industry, argue that Basel IV require a significant increase in capital and should be treated as a distinct round of reforms.[1]

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Contents

Requirements

Basel IV introduces changes that limit the reduction in capital that can result from Banks' use of internal models under the Internal Ratings-Based approach. This includes:[4][5]

  • A standardised floor, so that the capital requirement will always be at least 72.5% of the requirement under the Standardized approach;[6]
  • A simultaneous reduction in Standardised risk weights for low risk mortgage loans;[6]
  • Requiring banks to meet higher maximum leverage ratios (an initial leverage ratio maximum is likely to be set as part of the completion of the Basel III package);
  • A higher leverage ratio for Global Systemically Important Banks (G-SIBs), with the increase equal to 50% of the risk adjusted capital ratio[6]
  • More detailed disclosure of reserves and other financial statistics.

These reforms will take effect from January 2022 (with exception of the output floor, which is phased in, taking full effect only on 1 January 2027).[7]

British banks alone may have to raise another £50Bn in capital in order to meet Basel 4 requirements.[8] The average Common Equity Tier 1 (CET1) capital ratio for major European banks is estimated to fall by 0.9%, with the biggest impact on banks in Sweden and Denmark of 2.5%–3%.[9]

History

Basel III's rules increased the amount of capital that banks must hold, and set a core tier 1 capital ratio of 4.5%, with an additional GSIB surcharge of between 0.5%-3.5%. As of June 2019, only JP Morgan is subject to a 2.5% surcharge, with other large banks subject to lower additional CET-1 surcharges, such as Citigroup, Deutsche Bank and HSBC at 2.0% each. The technical implementation deadline for Basel III is 2019, but recent developments in the banking market have suggested that even stricter rules may be applied by a later framework, which has been dubbed "Basel 4".[10] The Basel Committee on Banking Supervision released a consultative paper, seeking out views on the Committee's plan to change how capital requirements and market risks are calculated.[11]

References

  1. ^ a b Davies, Howard (2017-12-21). "The Last Basel Round? by Howard Davies". Project Syndicate. Retrieved 2017-12-27.
  2. ^ "Regulators look ahead to 'Basel 4'". ICAEW. Retrieved 18 May 2014.
  3. ^ "Sixteenth progress report on adoption of the Basel regulatory framework". BCBS. Retrieved 31 May 2019.
  4. ^ "Basel 4 – Emerging from the mist". KPMG. Retrieved 18 May 2014.
  5. ^ "South Africa: Basel 4 – Emerging From The Mist?". Mondaq. Retrieved 18 May 2014.
  6. ^ a b c "Five things to remember about Basel III - Banking blog". blogs.deloitte.ch. Retrieved 2018-01-09.
  7. ^ "Sixteenth progress report on adoption of the Basel regulatory framework". BCBS. Retrieved 31 May 2019.
  8. ^ "KPMG: UK Banks Facing New £50bn Capital Hole as 'Basel IV' Emerges". International Business Times. September 12, 2013. Retrieved 18 May 2014.
  9. ^ Nicolaus, David (2017-12-19). "Basel IV – capital and strategic planning". KPMG. Retrieved 2018-01-10.
  10. ^ "KPMG Warns Over £50 Billion 'Basel 4′ Capital Hole". Moneybeat. Retrieved 18 May 2014.
  11. ^ "Introducing "Basel 4"?… Basel Proposes Changes to Trading Book Market Risk Capital Requirements". Advantage Reply. Missing or empty |url= (help)

External links

This page was last edited on 23 June 2019, at 18:40
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