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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