Basel IV / CRR3 / CRD VI – My last credit risk dance?

Basel IV / CRR3 / CRD VI – My last credit risk dance? 🤔

New measures to strengthen the financial strength of the bank are coming.

Basel I, II, III? CRR, CRR2, CRR3? 🧐

CRR = capital requirement regulation

The bank's solvency calculation is governed by the standards of the Basel committee, introduced in 1988. Then these calculations were reviewed in 2004 by this committee and implemented in 2008, known as Basel II. But in the meantime, there was a big financial crisis which quickly led to a review of Basel II standards which were not fully adapted and applied by all banks. European regulation then released the common CRR for all EU states which embeds Basel 3 and which was implemented in 2013.

Then, since 2013 there has been a long period of implementation, new evolutions have been applied and new rules recently in the form of CRR2.

Now, the bank is preparing to enter into new rules with a socio-economic context that is constantly evolving. Hence a new package of measures proposed by the Basel Committee, adapted by the European regulator in the form of CRR3. So, the final implementation of Basel 4 is scheduled for 2025. But in the meantime, banks must already prepare to face these new challenges.

¿Major changes? 😱

➡️ Introduction of the capital floor, output floor: the level of own funds calculated using internal models must not be less than 72.5% of the requirements calculated using the standard approach.

➡️ Credit risk:

o New standard risk weight scales, return of LTV, review of risk weight when there is no external rating.

o Introduction of input floors for PD and LGD models.

o Review of CCF grids.

o Review of specialized financing which becomes an exposure category

o Prohibition of the advanced approach on certain categories of exposure.

➡️ Market risk:

o Review of the capital calculation mechanism in the standard and advanced approach under FRTB standards.

➡️ Operational Risk:

o AMA model no longer usable.

Planned implementation date: January 1, 2025 🤪

To conclude, I have been in the credit risk field for 10 years, having experienced the transition from Basel II to Basel III at the very beginning of my career, I am preparing to face the transition from Basel III to Basel IV as my last dance in credit risk in my career? 💥