Abstract

ROSSIGNOLO, Adrián F.. The New Standardised Approach as a Credible Fallback. Rev. mex. econ. finanz [online]. 2021, vol.16, n.spe, e539.  Epub Sep 05, 2022. ISSN 2448-6795.  https://doi.org/10.21919/remef.v16i0.539.

The paper intends to measure the effect of Basel IV’s revamped Standardised Approach (SA) as a credible fallback to the Internal Models Approach. Using equity portfolios in the UK and US, the analysis reveals somewhat high Minimum Capital Requirements (MCR), conferring these figures an extra conservative nature. This, In turn, would generate disincentives to develop precise Internal Models stifling financial innovation, which could be remedied introducing slight changes in SA’s specification. A simulation analysis shows that, varying the fixed components of the formula alongside the introduction of calibration parameters, the output floor could be tailored to suit the needs of the local regulators using a stressed yardstick like the Loss Coverage Ratio, although every precaution must be taken in this regard. The present study ranks amongst the first to quantify the level of the output floor outside the BCBS and evaluate it against a crisis of considerable magnitude, finding that the current configuration delivers relatively excessive MCRs and, furthermore, providing alternative solutions that could enable the constitution of adequate -albeit not disproportionate- capital coverage.

Keywords : Basel Committee; Capital Requirements; Standardised Approach; Risk Weights; Correlation Parameters.

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