'Basel IV': Big bang - or the endgame of Basel III?

BCBS finalises reform on Risks Weighted Assets (RWA)

Almost 30 years after the publication of the first consultation paper on Basel I, the BCBS has now finalised its reforms to banking supervision following the financial crisis. ‘Basel IV’ is a major step forward.

On Thursday 7th December 2017, the Basel Committee for Banking Supervision (‘BCBS’) published the final instalments of its reforms for the calculation of risk weighted assets (‘RWA’) and capital floors. 

These papers complete the work that BCBS has been undertaking since 2012 to recalibrate the Basel III framework. Basel III was introduced to address the most pressing deficiencies that emerged from the 2007-08 crisis and make banks more resilient.

The finalised reforms, together with earlier publications that revise the calculation of RWAs – including the updated market risk framework published in January 2016 – are collectively referred to as ‘Basel IV’ by the industry, in recognition of the scale of the changes they introduce. These include revisions to the RWA calculation for all Pillar 1 risk types, meaning that both standardised and internal risk types will be impacted.

Further changes were published regarding the leverage ratio buffer for G-SIBs, together with a discussion paper on the treatment of sovereign debt.

 

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