Basel IV: IRB 2.0 and interdependencies with the new capital floor

Martin Neisen
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Martin Neisen: Partner, PricewaterhouseCoopers, Germany

Journal of Securities Operations & Custody, 2018, vol. 10, issue 4, 343-353

Abstract: The trust that market participants once put in banks’ internal models of calculating capital requirements was severely impacted by the 2007/8 financial crisis. This has led to many proposals to reform the methodology for the calculation of Risk Weighted Assets. This also includes the internal ratings-based approach (IRBA). This paper looks at the final version of the revisions advocated by the BCBS, which was published in December 2017 — ‘Finalising post-crisis reforms’. The focus will be on the changes to the IRBA and the introduction of a new capital floor. Even if the implementation of the new requirements was to last until 2022, banks and other financial markets participants expect a much bigger impact on the business models than in previous regulatory reforms.

Keywords: Basel Committee on Banking Supervision (BCBS); European Banking Authority (EBA); European Central Bank (ECB); internal ratingsbased approach (IRBA); credit valuation adjustment (CVA); risk-weighted assets (RWA); probability of default (PD); loss given default (LGD); Requirements Regulation (CRR) (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2018
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