Basel IV

"Basel IV" is industry shorthand for the package of revisions to the Basel III framework that the Basel Committee on Banking Supervision (BCBS) finalised in December 2017. The BCBS itself rejects the "Basel IV" label, insisting these are merely the completion of Basel III, but banks, supervisors, and analysts widely use the term because the changes substantially recalibrate capital requirements.

The core elements include:

• A revised standardised approach for credit risk, with more granular risk weights for residential mortgages, corporate exposures, and unrated counterparties.
• Constraints on banks' use of internal ratings-based (IRB) models, including the removal of the advanced IRB approach for large corporates, banks, and equities.
• A new standardised approach for operational risk, replacing the previous menu of approaches (including the Advanced Measurement Approach).
• Revisions to the credit valuation adjustment (CVA) framework.
• A leverage ratio buffer for global systemically important banks (G-SIBs).
• The headline change: an output floor requiring that risk-weighted assets calculated using internal models be no lower than 72.5% of those calculated using standardised approaches, phased in from 2022.

Implementation was originally scheduled for 1 January 2022 but was deferred to 1 January 2023 by the BCBS in March 2020 in response to COVID-19, with the output floor phasing in through 2028. In the EU the package is being transposed via CRR III and CRD VI, with application starting 1 January 2025. The United Kingdom is implementing through the PRA's "Basel 3.1" rules, and the United States proposed its own version ("Basel III Endgame") in July 2023, which has faced significant industry pushback and revision.

Basel IV is expected to raise minimum capital requirements most for large European banks that rely heavily on internal models, while having smaller effects on US and emerging-market banks that already use standardised approaches.