Preparing the banking industry for Basel IV
Start preparing for Basel IV
Major changes require major preparation
Basel IV impact in several areas
The new Basel III regulation impacts several areas of a bank, with credit risk being the area that will most of the changes will apply to.
- Standardized approach
- Stronger link between standardized and internal model based approaches by implementing capital floors
- Usage of external ratings, for exposures to banks, corporates and specialized lending
- Introduction or the LTV ratio for Residential Real estate exposures and exposures to commercial real estate arrangement that has been offered by the bank and accepted by the client to extend credit, purchase assets or issue credit substitutes.
- Recalibration CCF for off-balance commitements referring to any contractual
- Internal Model Approach
- Recalibration of PD floors or the IRB approaches
- Intoduction or LGD and EAD floors for corporate and retail exposures to ensure a minimum level of conservatism
- Removal of IRB approach for certain exposures
- Elimination of internal models approach for CVA
- Revised approach using 3 factors: Alpha, replacement cost and potential future exposure
- EAD is to be calculated separately for each netting set
Fundamental Review of the Trading Book:
- Revised boundary between Trading and Banking Book
- Revised measurement approach and calibration
- Incorporation of market illiquidity as risk factor
- Revised standardized approach
- More stringent approval process for internal model approaches
- More consistent identification of material risk factors across banks for IRB approach
- Abolishment of the Advanced Measurement Approach
- Combination of business indicator and bank specific operational loss date for the SMA
- Historical loss experience will be regarded as a relevant risk indicator of future operational risk loss exposure
- Introduction of a loss component
- Adoption of the market risk framework specified in the FRTB (including 2 approaches)
- Basic CVA framework consisting out of a single basic CVA approach which is an improved version of the current method
- Reduced version eliminates hedging recognition, while full version recognises counterparty spread hedges
- Introduction of a materiality threshold
- Introduction of the Simple, Transparent and Comparable (STC) criteria, and lower capital requirements for those securitizations meeting the criteria
- Revised hierarchy of approaches streamlined into three approaches
- Reduction of mechanistic reliance on external ratings
- Introduction of minimum risk weight of 15% for securitizations
- Introduction of minimum risk weights of 100% for resecuritisations
- Caps to risk weights of senior tranches and originators
- Introduction of a uniform approach for measuring the extent IRRBB could provide better comparability (standardized pilar I approach)
- As complement to the Pillar I approach, internal measurement methods for determining interest rate risk is allowed after approval of the supervisor
Get an overview of the impact Basel IV will have on your bank and check what aspect you need to take into account when making an analysis study.
Time to challenge your IT architecture status quo
The solutions and processes implemented in banks up to today will not hold up in the future. With all the changes Basel IV brings to banking institutions, now is the perfect time to modernize your software and systems. Basel IV brings challenges in:
With Basel IV, the call to modernize reporting software has never been so clear. Increasing integration needs, higher complexity, more granular and disciplined overarching reporting challenge banks to expand their analytical competenties. The right reporting software can play a key role in ensuring better understanding and use of data that is delivered toward the regulator.
Banks require tools that allow reliable Basel IV test calculations that can be carried out quickly. Regulatory reporting processes need to be effective, reliable, consistent and allow to meet regulatory requirements in a timely manner.
Data management and data governance since BCBS239 haven been in the spotlight, including in regulatory reporting. Basel IV continuous the trend with higher requirements in terms of availability, evaluability, quality and flexibility.
Watch our Basel IV video series
Short and to the point videos with the most important Basel topics
Having trouble keeping an overview of all the changes that come with the new regulation? To help you navigate all the changes within the new Basel IV regulation, take a look at our video series where each video is short and highlights a specific theme that will significantly change with the new Basel IV compliancy requirements.
Data collection as competitive advantage
28/08/2021
Since BCBS 239 data requirements in terms of availability, evaluability, quality and flexibilty have increased significantly.
Going for an upgraded collaboration framework
Live in September 2021
Basel IV calls for a holistic approach in which all major stakeholders use technology to upgrade cross border collaboration within the institution.
Performance is key for an efficient compliance process
Live in September 2021
With the new regulation, Basel transforms from a monthly compliance process into a risk management process in which performance is key!
Assess your current solution & architecture
Assessing your current vendor and analyzing the market for the appropriate solutions and tooling can be timeconsuming. b.fine assists your team by analyzing your as-is situation, your needs and the needs of the regulators to provide you with an objective report. Our extensive and fully independent research analyzes all the Basel IV solutions on the market. The results of that independent assessment will help you decide freely on the best solution to make your banking institution Basel IV proof.
