#banksonbasel: Dr. Matthias Danne

Why is the implementation of the output floor envisaged under Basel III drawing criticism?

It is to be feared that banks that use internal risk models will face a massive increase in capital requirements after implementation of Basel III, even though these internal models have been subjected to intense scrutiny by supervisory authorities in recent years and have already led to higher capital requirements. The output floor was originally designed to act as a backstop which would catch outliers. In actual fact, it has now become the key performance indicator for the majority of banks concerned. In October 2021, the European Commission was expecting a 25% increase in capital backing for German banks, with two-thirds being accounted for by the effects of the output floor.