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

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  • Neisen, Martin

    (Partner, PricewaterhouseCoopers, Germany)

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.

Suggested Citation

  • Neisen, Martin, 2018. "Basel IV: IRB 2.0 and interdependencies with the new capital floor," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 10(4), pages 343-353, September.
    • Handle: RePEc:aza:jsoc00:y:2018:v:10:i:4:p:343-353
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    More about this item

    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);
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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