Full updated report available here (May 2020).
Simone Bernardi, William Perraudin, Peng Yang
The Basel Committee’s response to the financial crisis was concluded in December 2017 by the publication of a final set of the regulatory changes (see BCBS 424). The measures in BCBS 424 introduce two major innovations. First, they revised the Risk Weights for credit risk exposures under the Standardised Approach (SA) and, second they impose floors on the capital of Internal Ratings Based (IRB) banks based on SA capital calculations. The Committee’s objective in implementing these changes has been to reduce the influence of internal models that advanced banks use to calculate capital and to change the relative capital burden across regulatory exposure classes. The impact of the changes is less transparent than that of some earlier post-crisis rule changes (such as changes in target ratios of the introduction of a leverage ratio). This paper analyses the impact of the measures for a particular national loan market, that of Switzerland. We chart the effects on Risk Weights, capital and lending rates of successive versions of the Basel Committee’s proposals and of the finally adopted reforms.
This paper is an updated version of Risk Control’s June 2015 paper: Capital Floors, the Revised SA and the Cost of Loans in Switzerland. A revised version of this paper was first published in March 2016 (available here).