Completion of Basel III post-crisis reforms: overview and analysis of key features

Abstract

In December 2017, the Basel Committee published the final revisions to the Basel III regulatory framework. The main objective of these revisions – the outstanding Basel III postcrisis reforms – was to reduce the excessive variability of risk-weighted assets. To further this purpose, a number of extensive changes were introduced to the existing regulatory standards, including the two available approaches for credit risk (the standardised approach and the internal ratings-based approach), the operational risk framework, the credit valuation adjustment framework, and the leverage ratio, among others. In addition, a more robust, risk-sensitive aggregate output floor based on the revised standardised approaches was added to the framework. In parallel, the Basel Committee completed its review of the regulatory treatment of sovereign exposures without changes to the current rules at this stage. This paper provides a general overview of all these developments along with more detailed explanations of their key features, rationale and workings.