Finance:Basel IV
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The Basel IV standards are changes to global bank capital requirements that were agreed in 2017 and are due for implementation in January 2023. They amend the international banking standards known as the Basel Accords.[1] 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] and the UK Government has called them "Basel 3.1".[4] 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.[5]
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:[6][7]
- A standardised floor, so that the capital requirement will always be at least 72.5% of the requirement under the Standardized approach;[8]
- A simultaneous reduction in standardised risk weights for low risk mortgage loans;[8]
- A higher leverage ratio for Global Systemically Important Banks (G-SIBs), with the increase equal to 50% of the risk adjusted capital ratio[8]
- More detailed disclosure of reserves and other financial statistics.
These reforms will take effect from January 2023 (with exception of the output floor, which is phased in, taking full effect only on 1 January 2027).[9]
British banks alone may have to raise another £50Bn in capital in order to meet Basel IV requirements.[10] 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%.[11]
History
Basel III is an international regulatory framework for banks, developed by the Basel Committee on Banking Supervision (BCBS) in response to the financial crisis of 2007-08. It contains various rules on capital and liquidity requirements. The 2017 reforms complement the initial Basel III. This set of rules was adopted on 7 December 2017 (14 January 2019 for the adjustment to the market risk framework) with an intended implementation date of January 2022 (2027 for the output floor).[12][13] As the BCBS does not have the power to issue legally binding regulation, the Basel standards have to be implemented by national authorities.[14]
In response to the COVID-19 pandemic, the BCBS agreed to delay implementation until January 2023.[15]
References
- ↑ Davies, Howard (2017-12-21). "The Last Basel Round? by Howard Davies" (in en). Project Syndicate. https://www.project-syndicate.org/commentary/basel-committee-new-capital-adequacy-rules-by-howard-davies-2017-12.
- ↑ "Regulators look ahead to 'Basel 4'". ICAEW. https://www.icaew.com/en/technical/financial-services/regulation-guidance/regulators-look-ahead-to-basel-4.
- ↑ "Sixteenth progress report on adoption of the Basel regulatory framework". BCBS. https://www.bis.org/bcbs/publ/d464.htm.
- ↑ "Prudential standards in the Financial Services Bill Policy statement". 2020-03-11. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871680/Final_Budget_policy_statement_-_Basel_and_prudential_measures.pdf.
- ↑ Davies, Howard (2017-12-21). "The Last Basel Round? by Howard Davies" (in en). Project Syndicate. https://www.project-syndicate.org/commentary/basel-committee-new-capital-adequacy-rules-by-howard-davies-2017-12.
- ↑ "Basel 4 – Emerging from the mist". KPMG. http://www.kpmg.com/lu/en/issuesandinsights/articlespublications/pages/basel-4-emerging-from-the-mist.aspx.
- ↑ "South Africa: Basel 4 – Emerging From The Mist?". Mondaq. http://www.mondaq.com/x/265476/Financial+Services/Basel+4+Emerging+From+The+Mist.
- ↑ 8.0 8.1 8.2 "Five things to remember about Basel III - Banking blog" (in en-GB). http://blogs.deloitte.ch/banking/2017/12/five-things-to-remember-about-basel-iii.html.
- ↑ "Sixteenth progress report on adoption of the Basel regulatory framework". BCBS. https://www.bis.org/bcbs/publ/d464.htm.
- ↑ "KPMG: UK Banks Facing New £50bn Capital Hole as 'Basel IV' Emerges". International Business Times. September 12, 2013. http://www.ibtimes.co.uk/uk-banks-capital-ratio-requirements-bank-england-505642.
- ↑ Nicolaus, David (2017-12-19). "Basel IV – capital and strategic planning" (in en-us). https://home.kpmg.com/xx/en/home/insights/2017/12/basel4-capital-and-strategic-planning-fs.html?a=b.
- ↑ "Finalising Basel III - in brief". BCBS. https://www.bis.org/bcbs/publ/d424_inbrief.pdf.
- ↑ "Basel III Website". BCBS. https://www.bis.org/bcbs/basel3.htm.
- ↑ "Policy development and implementation review". 30 October 2015. https://www.bis.org/bcbs/review_process.htm.
- ↑ (in en) Governors and Heads of Supervision announce deferral of Basel III implementation to increase operational capacity of banks and supervisors to respond to Covid-19. 2020-03-27. https://www.bis.org/press/p200327.htm.
External links
Bibliography
- Ioannis Akkizidis, Lampros Kalyvas (2018). Basel IV Modelling: Implementation, Impact and Implications, Palgrave Macmillan. ISBN:978-3319704241
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