Basel 4 is coming: banks must take action to remain viable

Basel 4: banks must take action to remain viable

Ahead of Basel 4 rules being completed in the first week of January 2017, KPMG outlines its expectations and subsequent impact on banks in a new paper ‘The World Awaits’.

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The completion of what is commonly called ‘Basel 4’ will put further downward pressure on European banks, forcing them to revise their business models and strategies in order to remain viable. 

Earlier this year KPMG predicted that Basel 4 will increase the capital requirements of major international banks by €350 billion. In addition to this, compliance will incur a host of new operational costs as they develop new internal risk models and produce far more robust and far-reaching capital reporting. 

Some policymakers in Europe have questioned whether it is appropriate to impose ever‑higher capital requirements on banks and have suggested that the detail and timing of the final standards should be adapted for local circumstances. Meanwhile, political developments in the United States could have an impact on Basel Committee discussions and on how the final standards are implemented there. 

KPMG believes there is scope for the consultation proposals to be reined back in the following areas:

  • Revising down the capital requirements under the standardised approach to credit risk
  • Allowing the continuing use of internal models for a broader range of credit risk exposures
  • Imposing less severe constraints around the use of internal models
  • Applying a lower capital floor than expected
  • Allowing long implementation and phasing in periods, to ease the costs of adjustment

Commenting, Steven Hall, Banking Partner, KPMG in the UK, says:

“Banks are eagerly awaiting the final rules of the much debated ‘Basel 4’. We’re in an unpredictable world so who knows for sure what we’ll actually get from the Basel Committee or how that will be implemented. But what we do know is that while banks are also struggling with record low interest rates, slow economic growth and unprecedented geopolitical uncertainties, further compliance and capital requirements will not make profitability any easier.  

“Banks that fail to identify and implement clear strategic priorities involving restructuring their balance sheets and reducing cost will struggle to succeed in this environment.”

- Ends -

For media enquires contact:

Christina Bridge, PR Manager - banking, insurance, investment 

T: +44 (0)207 311 4252

M: +44 (0)7789 504 905 

E: Christina.Bridge@KPMG.co.uk

KPMG Press Office: 

T: +44 (0)207 694 8773

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About KPMG International

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