Basel 4

Basel 4 as it is dubbed by the financial industry is a proposed standard on capital reserves for banks, to mitigate against the risk of financial crisis. It is expected to follow the third Basel accords (Basel III) , and would require more stringent capital requirements and greater financial disclosure.^[1]

Requirements

Basel 4 is likely to include:^[2][3]

• Requiring banks to meet higher maximum leverage ratios (an initial leverage ratio maximum is likely to be set as part of the completion of the Basel III package);
• Emphasising simpler or standardised models, rather than banks' internal models, for calculation of capital requirements (the Basel committee has made initial proposals on simpler models as part of the completion of the Basel III framework);
• More detailed disclosure of reserves and other financial statistics.

British banks alone may have to set aside another £50Bn of reserves to meet Basel 4 requirements.^[4]

History

Basel III's rules increased the amount of capital that banks must hold, and set a core tier 1 capital ratio of 7%. The technical implementation deadline for Basel III is 2019, but recent developments in the banking market have suggested that even stricter rules may be applied by a later framework, which has been dubbed "Basel 4".^[5] The Basel Committee on Banking Supervision released a consultative paper, seeking out views on the Committee's plan to change how capital requirements and market risks are calculated.^[6]

External links

• OECD: THINKING BEYOND BASEL III: NECESSARY SOLUTIONS FOR CAPITAL AND LIQUIDITY

References