Key takeaways

• On March 24, 2016, the Basel Committee on Banking Supervision published a consultation on “Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches.”
• The consultation includes proposals to: (1) remove the availability of internal models to estimate capital requirements for certain large corporate and financial institution exposures; (2) adopt exposure-level and model-level parameter floors for banks’ internal models; and (3) narrow the range of acceptable internal model parameter estimation practices.
• If adopted as proposed, the consultation could result in higher capital requirements for large banks, with banks located outside of the United States bearing a large share of the burden.