The Basel Committee on Banking Supervision (Basel Committee) has endorsed the outstanding Basel III post crisis regulatory reforms.
The reforms include the following elements:
- a revised standardised approach for credit risk, which is intended to improve the robustness and risk sensitivity of the existing approach:
- revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;
- revisions to the credit valuation adjustment framework, including the removal of the internally modelled approach and the introduction of a revised standardised approach;
- a revised standardised approach for operational risk, which will replace the existing standardised approaches and the advanced measurement approaches;
- revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks (G-SIBs) which will take the form of a Tier 1 capital buffer set at 50% of a G-SIBs risk-weighted capital buffer; and
- an aggregate output floor, which will ensure that banks’ risk-weighted assets (RWAs) generated by internal models are no lower than 72.5% of RWAs as calculated by the Basel III framework’s standardised approaches. Banks will also be required to disclose their RWAs based on these standardised approaches.
The revised standards will take effect from 1 January 2022 and will be phased in over five years.
View Governors and Heads of Supervision finalise Basel III reforms, 7 December 2017
View Basel III: Finalising post-crisis reforms, 7 December 2017