On December 20, ISDA and the Association for Financial Markets in Europe (AFME) submitted a joint comment letter to the European Commission (EC) on their consultation on the revised Capital Requirements Regulation (CRR3).
The Basel III framework is a central element of the Basel Committee on Banking Supervision’s response to the global financial crisis. It aims to address a number of shortcomings in the pre-crisis regulatory framework and provides a foundation for a resilient banking system to avoid the build-up of systemic vulnerabilities.
The main objective of the latest revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets (RWA). The key (and most impactful) measure to address this is the Output floor which sets the minimum amount of capital a bank can draw from use of internal models based approaches to 72.5% of the capital required under the standardised approach. The CRR3 proposals will also include significant changes to the Credit risk and Operational Risk framework, as well as implementing other reforms related to credit valuation adjustment risk and market risk.
ISDA continues to work closely with EU regulators as they seek to implement the final revisions to Basel III in the EU.