Basel III/IV — Final Banking Reform Package

The final Basel III reform package — often referred to as 'Basel IV' — was published by the Basel Committee on Banking Supervision (BCBS) on 7 December 2017 and represents the completion of the post-financial-crisis regulatory reforms. It addresses the excessive variability of risk-weighted assets (RWA) that had arisen from the use of internal models.

The centrepiece is the output floor of 72.5%: RWA from internal models may not fall below 72.5% of RWA calculated under standardised approaches. In addition, the standardised approaches for credit, market, and operational risk were fundamentally revised, the leverage ratio for global systemically important banks (G-SIBs) was supplemented with a buffer, and the CVA framework was reformed.

Implementation varies globally: the EU implemented the package through CRR III (Regulation 2024/1623) and CRD VI (Directive 2024/1619) as of 1 January 2025, with a phased output floor through 2030. The UK PRA postponed its Basel 3.1 implementation to January 2027, and in the US, the Fed, OCC and FDIC previewed revised Basel III proposals in early 2026 that materially reduce the requirements compared with the 2023 draft.

Following the 2007–2009 financial crisis, the BCBS published the original Basel III framework in December 2010 with strengthened capital and liquidity requirements. As significant differences in the calculation of RWA through bank-internal models were identified, the Committee began a comprehensive revision of risk-weighting rules in 2012.

On 7 December 2017, the BCBS adopted the final standards with an original implementation date of 1 January 2022. The COVID-19 pandemic led to a deferral to 1 January 2023, with phased introduction of the output floor through 2028. In practice, implementation lags significantly in many jurisdictions: the EU published CRR III/CRD VI in the Official Journal on 19 June 2024 (applicable from 1 January 2025); the FRTB market-risk requirements were postponed by delegated act first to 1 January 2026 and, in June 2025, again to 1 January 2027. The UK PRA deferred its implementation to January 2027. As of September 2025, only 8 of 20 member jurisdictions had fully implemented the framework according to the BCBS dashboard.

The final Basel III reform package targets internationally active banks and is transposed into binding law by national or regional legislators:

• Credit risk: Revised standardised approach (SA-CR) with more granular risk weights and restricted use of external ratings; reformed IRB approach with constraints for certain portfolios (e.g., removal of A-IRB for large corporates).
• Market risk: Fundamental Review of the Trading Book (FRTB) with revised standardised and internal model approaches, including a new boundary between the trading and banking book.
• Operational risk: New standardised approach (SA-OR) replaces all previous approaches; based on the Business Indicator and historical losses.
• Output floor: RWA from internal models may not fall below 72.5% of RWA calculated under standardised approaches (phased introduction).
• Leverage ratio: G-SIB buffer of 50% of the risk-based G-SIB buffer is added to the 3% minimum leverage ratio.

• Output floor: Aggregate RWA from internal models must be at least 72.5% of RWA calculated under standardised approaches; phased introduction from 50% (2025 in the EU) to 72.5% (2030).
• Credit risk standardised approach: More granular risk weights, e.g., splitting of real estate exposures by loan-to-value, and due diligence requirements instead of automatic reliance on external ratings.
• IRB restrictions: Removal of the advanced IRB approach for exposures to large corporates, banks, and other financial institutions; minimum PDs and LGDs introduced.
• FRTB: Revised standardised approach based on sensitivities; internal model approach with expected shortfall methodology and desk-level approval.
• Operational risk: Single standardised approach replaces all previous models; combines the Business Indicator Component with the Internal Loss Multiplier.
• CVA risk: New framework with basic and standardised approaches; advanced approach available only to institutions with an approved FRTB model.
• Leverage ratio: Minimum 3% plus G-SIB surcharge; stricter calculation of the total exposure measure.

The history fields state the FRTB market-risk requirements were postponed in the EU 'to 2026' (first deferral). In June 2025 the European Commission adopted a further postponement to 1 January 2027 by delegated act.