Basel IV
Basel IV refers to the finalized Basel III reforms that further refine capital calculation methodologies and risk measurement.
Meaning in Practice
Basel IV introduces output floors and revised approaches for calculating credit and operational risk. It limits variability in internal risk models. The reforms aim to increase comparability and transparency across banks.
Why It Matters
The framework enhances consistency in capital requirements globally. It reduces excessive model-based variability in risk-weighted assets. This strengthens confidence in reported capital ratios.
Market Impact
Revised risk calculations may increase capital requirements for some institutions. Banks could adjust portfolios and pricing strategies. Investors monitor implementation timelines and capital impacts.
Example
A bank recalculates its risk-weighted assets under new output floor rules, resulting in higher capital requirements.