In response to the global COVID-19 crisis, the Basel Committee on Bank Supervision on Friday announced it will delay the implementation deadline of the so-called ‘Basel IV bank capital package’ from January 2022 to January 2023 (see here). The Basel Committee, which is composed of the worlds leading bank supervisors, said that this delay would allow both supervisors and the banking industry to focus their operational capacity on responding to the COVID-19 crisis.
In practice, this delay gives global jurisdictions more time to implement the package in national or – in Europe – EU law. The Committee did however reiterate its commitment to the full implementation of the package.
The Basel IV package, which will be implemented globally over the coming years, is expected to have a strong impact on the minimum capital requirements of European Banks. The package’s main goal is to reduce the variability between capital requirements calculated via internal models versus those calculated through standardised approaches. The most controversial measure taken in this regard is the introduction of an output floor, which caps the difference between those calculations at maximum 72.5%.
From the perspective of the securities lending industry, one of the key elements of the Basel IV package is the introduction of mandatory minimum numerical haircuts for securities financing transactions into the bank capital framework. Regardless of the delay announced on Friday, the European Banking Authority has advised the European Commission (see here) not to implement the mandatory haircut provision in EU law at this point in time.