Basel IV – What are some of the new Credit Risk-Standardised Approach (CR-SA) capital calculation rules being introduced? (Basel IV Training)

Basel IV – What are some of the new Credit Risk-Standardised Approach (CR-SA) capital calculation rules being introduced - Starting 1 January 2023 (Basel IV Education)

Basel IV introduces many changes to the CR-SA methodology. These include:

• Unrated exposures - A more granular approach has been developed of unrated exposures to banks and corporates, and for rated exposures in jurisdictions where the use of external credit ratings is permitted. Additional due diligence is required
• Exposure to banks - Some of the RWs for rated exposures have been calibrated. In addition, the RW treatment for unrated exposures is more granular than the existing flat RW. A standalone treatment for covered bonds has also been introduced. (Risk Weights (RW) 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. The system is based on the concept of risk weights as a series of factors.)
• Exposures to corporates - A more granular look-up table has been developed. A specific RW applies to exposures to small and medium-sized Enterprises or SMEs (i.e.?85% will be applied for unrated exposures to corporate SMEs and a 75% for exposures to SMEs that are treated as regulatory retail SME exposures).

Basel IV’ is effective starting 1 January 2023.

We have launched three Basel IV training courses, including Credit Risk, Market Risk/FRTB and Operational Risk. It’s available to both you and your team.

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.?

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

London, UK – 4 August 2021

* - Basel IV is not a single regulatory framework, but, rather a collection of changing international banking standards. In fact, the Basel Committee views these reforms as simply completing the Basel III Accord and contests the use of the unapproved term ‘Basel IV’. However, Basel IV (Basel 4) is now part of the regular vernacular and will be used here. Irrespective of the terminology, significant new burdensome requirements are being introduced by the Bank for International Settlements (BIS) and Basel Committee of Banking Supervision (BCBS).??

Reference: 6 – Linked-in Posting - Basel IV - CR – CR Post # 2 - Section # 1 - No. 2