Basel 4: The way ahead
Basel 4: The way ahead
In December 2017, the Basel 4 standards were finalised.
In December 2017, the Basel Committee on Banking Supervision (BCBS)
With the final Basel 4 standards, the BCBS introduced a new single non-model based method for the calculation of operational risk (OpRisk) capital called the Standardised Approach (SA). This replaces three existing approaches under Pillar 1 and is due to apply from 1 January 2022. But does it also pose the risk of reducing incentives for robust risk management within the business due to the lack of risk sensitivity?
The new capital requirement standards issued by the Basel Committee have several implications for market risk when implemented on 1 January 2022. The confirmation of an output floor will potentially constrain the benefits from the use of internal models when determining a bank's
The set of final standards agreed by the Basel Committee in December 2017 for credit risk, operational risk and the output floor also included revised minimum standards for the capital treatment of credit valuation adjustment (CVA) risk. In this article, we discuss the two new approaches replacing the current standard; the Basic Approach (BA-CVA) and the Standardised Approach (SA-CVA). What impact will these have on banks' capital, data
As part of the final Basel 4 standards, the Basel Committee finalised its reforms for the Standardised Approach (CR-SA) and the Internal Ratings Based approach (CR-IRB) for the calculation of
This companion paper to our earlier CR-SA article discusses the use of the Internal Ratings Based (IRB) approach for credit risk. The new rules regarding the use of the IRB approach for the calculation of
The final article in our series brings together the full analysis of the series; the new standardised and internal ratings based approaches to credit risk, the impact of the output floor on market risk, operational risk, and credit valuation adjustment risk. We discuss banks' strategic options to address Basel 4, which are likely to focus primarily on adjusting their product and client portfolios, and on achieving operational efficiencies.
Risk Management and Internal Audit
Processes and optimization of risk management should be included in the culture of the organization.