Basel Committee Releases ‘Basel IV’ Capital Framework

The Basel Committee on Banking Supervision today unveiled the latest round of its regulatory capital framework, commonly dubbed “Basel IV.” The framework makes changes to the capital framework first introduced as Basel III in 2010. The committee targeted 2022-27 as the timeframe over which the new framework would be implemented by regulators in individual countries, often tailored to each country’s financial system.

The new framework appears designed to limit the flexibility of financial institutions using advanced approaches to calculate credit and other risk factors. For example, it imposes a revised output floor that sets minimum capital levels for banks using internal models; a bank’s risk-weighted assets calculated under a regulatory-approved method cannot be lower than 72.5 percent of risk-weighted assets according to the standardized Basel approaches. The revised framework also makes significant amendments to the standardized approaches to credit risk, credit valuation adjustment risk and operational risk.

While noting “the important role global standards play in promoting comparable and coordinated supervision across international jurisdictions,” American Bankers Association EVP Wayne Abernathy emphasized the importance of “U.S. regulators implement[ing]those standards and writ[ing]the implementing regulations in a manner that’s consistent with our country’s interests and financial conditions.” Because there is significant uncertainty about whether and how the standards could be adopted, He urged regulators to seek “early public comment” through an advance notice of proposed rulemaking to facilitate full public comment should the agencies be considering adopting these standards.