Basel IV / CRR III

The finalisation of the Basel III framework - known as Basel IV - is imminent: Already on 27 October 2021, the EU Commission presented the draft of an EU banking package, which is to implement Basel IV into European law with the CRR III (Capital Requirements Regulation), among others. The European Council (October 2022) and the European Parliament (January 2023) have also published their positions in the meantime, so that the final negotiations can start.

Basel IV is the collective term for regulatory innovations for the further development of the capital adequacy framework for banks in accordance with the specifications of the Basel Committee on Banking Supervision (BCBS). In addition to the general objective of ensuring financial stability, the finalisation of Basel III in the EU is also intended to strengthen the risk-based capital framework, focus on ESG risks and harmonise supervisory powers and instruments.

While CRR II still had a moderate impact on the calculation of RWA (risk-weighted assets), CRR III brings about significant changes in RWA and capital requirements. For European banks in particular, it means potential changes in profitability, in the design of individual products and their pricing, as well as in the implementation of significant requirements for IT and reporting solutions.

The most important changes for the institutions concern in particular the requirements for the calculation of RWA for credit risk, operational risk, CVA risk (Credit Valuation Adjustment) and partly market risk. The successive introduction of the so-called output floor, which limits the possible relief effects of users of internal models on RWA, is also coming into focus. In the future, they will have to apply all standard approaches in parallel to the internal models.

German banks in particular will be strongly affected by the above-mentioned changes, as many rely to a large extent on internal models and their exposure is often concentrated in areas with previously lower risk weightings. Accordingly, the revised standards can often result in higher capital requirements as well as high implementation costs for the institutions.

These include developing new methodologies to meet the new standards, complying with imposed disclosure requirements, and adapting systems and processes. Against the backdrop of strong competition within the industry and constant regulatory changes, institutions are facing major challenges overall - including integrating the effects into pricing.

Early familiarisation with the new regulations helps to assess the effects on risk-weighted assets and the resulting amount of regulatory capital that banks must hold under Basel IV. In particular, the internal processes in the banks and the interactions between the reporting units (including the reporting system) and the back-office and credit departments must be strengthened and expanded.

KPMG is in a market-leading position in providing implementation support for the Basel IV and CRR III requirements. We support our clients with detailed knowledge of Pillar 1 and Pillar 2 capital requirements and their interactions. Extensive experience in covering the broad range of topics and sound regulatory expertise (KPMG ECB Office) ensure tailor-made solutions for your house on the way to implementing the banking package.

We offer you established calculation and benchmarking tools from ongoing implementation projects for analysing potential effects from RWA changes and potential design decisions. In addition, we bring proven tools, methods and EU-wide implementation experience for the best possible success in ensuring your institution's reporting capability under CRR III in high quality – including technical adjustments to the delivery routes - into the reporting system.

Feel free to contact us at any time!

In the coming weeks, we will provide you with insights into the ongoing trilogue process and publish a series of further insights from our team of experts on various areas affected by the Basel standards. Our authors will be presenting their views on the challenges, expectations of supervisors and implementation measures.

We are pleased to provide you with successive brochures on CRR III below.

 (in German only)

 (in German only)