Basel IV – New Standardised Approach (SA) for Credit Risk (CR-SA) capital calculation rules being introduced

?Basel IV – Basel IV – New Standardised Approach (SA) for Credit Risk (CR-SA) capital calculation rules being introduced - Starting 1 January 2023??????

Basel IV – What are the changes to CR-SA (Credit Risk – Standardised Approach)?

Basel IV introduces the following changes to the CR-SA capital calculation methodology:

• New risk weights for the majority of the asset classes.
• Provides for more detailed risk weightings (rather than a flat risk weights) for certain categories of exposures, including covered bonds, project finance, residential and commercial real estate, potentially resulting in lower risk weights for less risky portfolios. (Note: Risk Weights are multipliers. A Risk Weighted Asset is a balance sheet asset class that has been multiplied by its risk weight. These are used to derive a balance sheet expressed in terms of risk-weighted assets, which in turn is used to derive the capital requirement.)
• Higher granularity of risk-weights for mortgages (mostly depending on the LTV (Loan to Value) of the property)
• New methodologies for bank exposures (using either external or standardized credit risk assessments)
• No changes in Sovereign and PSEs (Public Sector Entities) methodology.

Basel IV Credit Risk is effective starting 1 January 2023.

We have launched three Basel IV training courses, including Credit Risk, Market Risk/FRTB and Operational Risk. If you are interested, please have a look. See: ??

https://www.risksexplained.com/

We also can provide in-person/on-site training at your business location. Anywhere in the world. Subject to any Covid 19 restrictions. ?

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By: Mark Dougherty, CPA, CMA (Chartered Professional Accountant, Certified Management Accountant)

London, UK – 25 July 2021