Basel 4 - the impact on Swiss banks
How to act adequately?
The finalisation of the Basel 4 post-crisis reforms includes a number of enhancements to the Basel 3 framework. Fully understanding the changes and their impacts is crucial to adequately (re)define the capital plan, identifying mitigation levers and consequently the business strategy for every Swiss bank.
An overhaul of the regulatory landscape
The Basel 4 post-crisis reforms were finalised by the Basel Committee on Banking Supervision in December 2017 and aim to further strengthen the regulation, supervision and practices of banks worldwide, with the purpose of enhancing financial stability. This is a fundamental overhaul of the standardised approaches, increasing their sensitivity and granularity. In addition, the reforms limit the use of internal rating based models, and introduce the capital output floor.
This article will focus on the updated credit risk framework, as well as the impact of the newly introduced output floor. Understanding the impact of these changes and the main risk drivers will be key in managing the bank's capital efficiency.
The impact in Switzerland
The aim of this paper is to understand the drivers of the RWA impacts across the different portfolios of a typical Swiss bank, and hence shed light on which components of the bank will be most affected. This paper further gives guidance on first steps to take to start understanding the impact of the reforms on required data, changes in processes, changes in modelling and the required governance, and how Swiss banks could commence implementation of these reforms.
How Deloitte can help
Our financial risk management team supports organisations by providing insights on the management of risks and associated capital requirements. Our services include development and review of capital models to address key regulatory concerns, end-to-end implementations, capital planning and cost allocations. Additionally, we help financial institutions in interpreting the forthcoming regulatory changes, assessing the impacts and advising on strategies to optimise requirements.