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Basel IV

Basel IV describes the changes agreed in 2016 and 2017 to the international banking standards known as the Basel Accords.

Basel IV introduces changes that limit the reduction in capital that can result from banks’ use of internal models under the Internal Ratings-Based* approach. These include:

  • A standardised floor, so that the capital requirement will always be at least 72.5% of the requirement under the standardised approach (MREL)
  • A simultaneous reduction in standardised risk weights for low risk mortgage loans
  • 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)
  • A higher leverage ratio for Global Systemically Important Banks (G-SIBs), with the increase equal to 50% of the risk adjusted capital ratio
  • More detailed disclosure of reserves and other financial statistics.

*Internal TLAC applies to subsidiaries of a resolution entity not being resolved in the entity’s home jurisdiction and can include for example collateralised guarantees provided from the parent.

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