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Basel Committee on Banking Supervision (BCBS)

The Basel Committee on Banking Supervision (BCBS) has released on December 2017 its final directive – Basel III: Finalising post-crisis reforms.

These reforms intend to make the capital framework more robust, and improve confidence in banking systems. They will help reduce excessive variability in risk-weighted assets, and will improve the comparability and transparency of banks’ risk-based capital ratios.

The reforms include the following elements:

  • a revised standardised approach for credit risk, which will improve the robustness and risk sensitivity of the existing approach;

  • revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;

  • revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardised approach;

  • a revised standardised approach for operational risk, which will replace the existing standardised approaches and the advanced measurement approaches;

  • revisions to the measurement of the leverage ratio and a leverage ratio buffer for global systemically important banks (G-SIBs), which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB’s risk-weighted capital buffer; and

  • an aggregate output floor, which will ensure that banks’ risk-weighted assets (RWAs) generated by internal models are no lower than 72.5% of RWAs as calculated by the Basel III framework’s standardised approaches. Banks will also be required to disclose their RWAs based on these standardised approaches.

Integrity can help you to implement the Basel III reforms by the following services:

  • Conducting a Gap Analysis for the Basel document, as well as proposing recommendations to close the gaps.

  • Recommendation for a risk management system.

  • Building a loss data collection framework (for operational risk).

  • Writing Policy Documents and procedures for conducting the directive.