The European Banking Authority’s (EBA) latest Basel IV impact assessment notably indicates a 24.4% increase in the minimum total capital requirement that potentially creates a rather startling €135.1 billion shortfall in total capital – largely impacting systemically important financial institutions (SIFI). Under discussion at risk conferences and symposia everywhere, this assessment is giving fresh credence to that familiar adage: the only constant is change.
The primary factors driving the substantial increase in the total capital requirement are:
- 37% output floor: The obvious response to models producing values one does not like is a floor, of course.
- 20% reforms in credit risk: This reform delivers a double whammy by forcing the Standardized Approach for low-default portfolios and establishing various floors on the underlying risk components. More floors anyone?
- 16% delta on credit valuation adjustment: See what we did there?
Is there an opportunity to fully embrace this change?
With Basel IV and its cast of supporting regulations (FRTB anyone?) all vying for a line in the budget in the next few months, financial institutions are starting to wonder if maybe, just maybe, regulatory change really is the only constant in the never-ending Basel equations.
Institutions embracing this reality are looking for a platform that can easily adapt to the shifting sands of regulation – a platform for change. AxiomSL ControllerView® is a robust and flexible platform that enables financial institutions to adapt quickly to the changing dynamics of the industry and minimize the time-consuming, costly, and complex effort of managing myriad solutions from various vendors that all require regression testing and impose tough integration challenges.