The Basel III framework is a central element of the Basel Committee’s response to the global financial crisis. It aims to address a number of shortcomings in the pre-crisis regulatory framework and provides a foundation for a resilient banking system to avoid the build-up of systemic vulnerabilities.
The main objective of the latest revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets (RWA). The key (and most impactful) measure to address this is the Output floor which sets the minimum amount of capital a bank can draw from use of internal models based approaches to 72.5% of the capital required under the standardised approach. The CRR3 proposals will also include significant changes to the Credit risk and Operational Risk framework, as well as implementing other reforms related to CVA risk and Market risk.
AFME is working closely with EU regulators as they seek to implement the final revisions to Basel III in the EU. We are supporting our Members in responding to the relevant consultations in the lead up to the Commission’s CRR3 proposals expected in June 2020. AFME’s positions on the various elements of the Basel III package from December 2017 can be found below as part of the break down to the Commission’s recent consultation.