Capital floors: the design of a framework based on standardised approaches - consultative document
This consultative paper outlines the Basel Committee's proposals to design a capital floor based on standardised, non-internal modelled approaches. The proposed floor would replace the existing transitional capital floor based on the Basel I framework. The floor will be based on revised standardised approaches for credit, market and operational risk, which are currently under consultation.
The floor is meant to mitigate model risk and measurement error stemming from internally-modelled approaches. It would enhance the comparability of capital outcomes across banks, and also ensure that the level of capital across the banking system does not fall below a certain level.
As noted in the Committee's November 2014 report to the G20 Leaders, the Committee is taking steps to reduce variation in capital ratios between banks. The proposed capital floor is part of a range of policy and supervisory measures that aim to enhance the reliability and comparability of risk-weighted capital ratios. The Committee will consider the calibration of the floor alongside its work on finalising the revised standardised approaches.
The Committee welcomes comments on all aspects of this consultative document. Comments on the proposals should be uploaded by Friday 27 March 2015. All comments will be published on the website of the Bank for International Settlements unless a respondent specifically requests confidential treatment.