Basel 3.1 for Large Banks

Please refer to page below for remaining changes applicable to small and medium sized banks CLICK HERE

 

Table 1: Changes in Credit Risk – IRB Approach

Aspect Description
Removal of A-IRB Options Certain exposure classes must now use the SA for credit risk, eliminating the A-IRB option.
Input Floors Introduction of floors for PD and LGD parameters to ensure minimum risk weights.
Parameter Estimation Constraints More prescriptive requirements for PD, LGD, and EAD estimation to reduce RWA variability.
Granularity in Risk Differentiation Enhanced differentiation in corporate, sovereign, and bank exposures to better reflect risk.

 

Table 2: Credit Risk Mitigation (CRM) – No Significant Changes for SA

Aspect Description
CRM Techniques Focus on ensuring CRM techniques effectively capture risk mitigation impacts.

 

Table 3: Changes in Credit Valuation Adjustment (CVA)

Aspect Description
Full BA-CVA Simplified approach allowing for certain hedging strategies in CVA risk calculation.
SA-CVA More risk-sensitive formula-based approach considering counterparty credit rating changes.

 

Table 4: Changes in Market Risk – Internal Model Approach (IMA)

Aspect Description
Banking/Trading Book Boundary Revised boundary to reduce arbitrage incentives.
Standardised Approach (SA) Revised as a credible fallback and floor to the IMA.
Criteria for IMA Use of expected shortfall (ES) instead of VaR, introduction of liquidity horizons.

 

Table 5: Pillar 3 Disclosure Requirements for Large Institutions

Aspect Description
Disclosure Enhancements More detailed and granular disclosure requirements for RWAs, leverage ratios, and output floor application.

 

Table 6: Output Floor

Aspect Description
Minimum Level of Capital RWAs calculated using internal models cannot be less than 72.5% of those calculated under SA, phased in over 4.5 years.

 

Table 7: Pillar 2 Framework – No Specific Changes

Aspect Description
Pillar 2 Methodologies Review PRA intends to review methodologies by 2024, hinting at potential future adjustments.

 

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