Basel 4 and implications for Australia

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Recent (Basel 3) and proposed (‘Basel 4’) changes to bank capital requirements were designed for internationally active and/or systemically important banks, yet some of their biggest impacts will be felt on domestic, so-called “standardised” banks that are not large or sophisticated enough to deploy internal risk-based capital models. The calibration of proposed capital floors and leverage ratio requirements must be undertaken carefully to maintain appropriate risk sensitivities. Assuming this can be managed, it appears likely the Basel 4 changes could improve the competitiveness of small, standardised banks in Australia, particularly in SME and personal lending. it  could also lead to growth in the share of the mortgage market held by standardised banks

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This paper was presented in July 2015 at the 20th Melbourne Money and Finance Conference (MMFC), which explored the theme The Australian Financial Sector and Global Integration.

For more papers presented in the conference, please click here.