BaselIV

Basel IV refers to a set of international banking regulations developed by the Basel Committee on Banking Supervision (BCBS). These reforms are intended to strengthen the regulation, supervision, and risk management of banks globally. The primary objective of Basel IV is to enhance the resilience of the banking sector by addressing shortcomings identified in the previous Basel III framework, particularly in the areas of credit risk, operational risk, and market risk.

Key aspects of Basel IV include revised approaches to calculating risk-weighted assets (RWAs). The reforms aim to reduce variability in RWA calculations, making them more standardized and less dependent on internal bank models. This is achieved through measures such as revised credit risk standardized approaches, the introduction of an output floor, and enhancements to the operational risk framework. The output floor, a significant component, limits the extent to which banks can reduce their RWAs below a certain threshold determined by standardized approaches, thereby capping the benefits banks can gain from using internal models.

The implementation of Basel IV is designed to ensure that banks hold sufficient capital to absorb potential losses and to prevent a build-up of systemic risk within the financial system. While often referred to as "Basel IV," it is officially considered the finalization of the Basel III framework, building upon its foundations. The reforms are being phased in gradually to allow banks time to adapt and to minimize any potential disruption to financial markets.