Overview of the impacts and potential lines of action after the Basel III reform

Basel Committee on Banking Supervision (BCBS)

In December 2010, the BCBS published the Basel III framework with the aim at addressing a number of shortcomings with the pre-crisis regulatory framework and providing a regulatory foundation for a resilient banking system that supports the real economy. Since then, the BCBS has published several consultation papers focused on strengthening the current regulatory framework (e.g. by increasing the level of capital requirements, enhancing risk capture by revising areas of the risk-weighted (RWs) capital framework for market risk, counterparty credit risk, etc.).


Impacts and potential lines of action after the Basel III reform

Watch video

In this context, the BCBS published in December 2017 Basel III: finalising post-crisis reform which includes revisions to the current Basel III framework in order to reduce excessive variability of risk-weighted assets (RWAs). In particular, these revisions to the regulatory framework will help restore credibility in the calculation of RWA by: i) enhancing the robustness and risk sensitivity of the standardised approaches for credit risk and operational risk, which will facilitate the comparability of banks' capital ratios; ii) constraining the use of internally modelled approaches; and iii) complementing the risk-weighted capital ratio with a finalised leverage ratio and a revised and robust capital floor.

Given the interest on the Basel III reform published by the BCBS, the R&D department has prepared a summary with the main impacts and lines of actions regarding the Basel III reform.

Executive Summary

This summary analyses the impacts to the credit risk framework (SA and IRB), CVA, operational risk framework, output floor and leverage ratio, as well as a general outlook of the lines of action regarding the reforms introduced by the BCBS to the current Basel III framework.

Area of application

This reform is applicable to all internationally active banks.

Main content

  • Analysis of impacts. The reforms introduced by the BCBS to the current Basel III framework amend the following frameworks:
    • Credit risk - SA, regarding the exposures to banks, retail exposures, etc.
    • Credit risk - IRB, removing the use of the A-IRB approach for exposures to large and mid-sized corporates, to banks, securities firms, and other financial institutions; as well as introducing input floors to parameters, among others aspects.
    • CVA risk, including a standardised approach and a basic approach.
    • Operational risk, replacing the existing approaches with a new standardised approach.
    • Output floor, establishing an output floor as the higher of [RWA of the entity (standard /IRB approaches); 72,5% RWA from the standard approach].
    • Leverage ratio, introducing a buffer for G-SIBs and refining the LR exposure measure.
  • Quantitative impact analysis. According to the Ad-hoc cumulative assessment published by the EBA in December 2017, it is estimated that in order to cover the T1 minimum capital requirements for capital and leverage it will be necessary to have a Tier 1 capital base higher than a 13%.
  • General outlook of lines of action.

Download the technical note by clicking here (only in spanish).