Basel IV implications - what you need to know

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Basel IV completed its approval process at EU level, in December 2023 the Council of European Union confirmed the final compromises text expected to be a quasi-final version of the regulation which will enter into force from January 2025
Compliance with new Regulation will challenge Banks throughout the organization with emphasis on management of RWA inflation and of Data model lifecycle
RWA inflation is primarily led by 3 factors:
The introduction of an output floor, limiting the RWA benefits from IRB models in comparison with the overall RWA under the standardized approach
The introduction of relevant changes to IRB models and parameters
New RWA methodologies and asset classes for standard approach
Enhanced Data capabilities are among key success factors to manage RWA inflation and, at the same time, under the spotlight of ECB that set compliance with BCBS239 has a 2023-2025 priority
In this context there are no doubt about the importance for Banks to start assessing Basel IV implications on capital and profitability, identifying opportunities to mitigate RWA inflation (for both standard and Internal models), to strengthen data strategy and to launch targeted and well-informed implementation program