In this report, FedFin builds on prior analyses of the U.S. Basel III rule to address the risk-weighted asset (RWA) requirements applicable to advanced-approaches banking organizations (i.e., those with assets over $250 billion or $10 billion in foreign assets). The standardized RWAs now serve as a floor under the advanced ones, meaning that big banks must hold the higher of the standardized or advance RWA, not the lower of the two as determined by internal models or other factors as has been permitted to date under Basel II. Partly as a result of this new floor and partly due to significant changes in the advanced RWAs for complex assets (e.g., securitizations) and for intra-industry exposures, the new framework is far tougher than prior rules and will result in significant strategic changes at affected banking organizations.
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