Basel IV | Status Update and What is Next
Basel IV | Progress, Challenges, Outlook.
For a Basel IV framework to exist officially, we need a formal announcement from the Basel Committee on Banking Supervision (BCBS), supported by a clear naming convention. As of now, the Committee refers to the post-2017 reforms as the "finalization of Basel III," not as a new framework. Unless the BCBS decides to issue a distinct, standalone set of rules under a new name, Basel IV for example, there will be no official Basel IV framework.
But what would need to happen for “Basel IV” to move from an informal term to an official regulatory framework? What steps would lead to formal recognition?
To answer this, we can look at the process that led to the creation of Basel III and the steps typically involved in introducing a new regulatory framework.
Step 1: The first step toward the development of any new Basel framework is the identification of weaknesses, gaps, or limitations in the current regulatory system. This is typically driven by real-world events or structural changes in the financial system that expose shortcomings in existing rules.
The development of Basel III is a clear example of this process. It was initiated in the aftermath of the 2007–2008 global financial crisis, which revealed severe deficiencies in the Basel II framework. Basel II had allowed banks significant flexibility in using their own internal models to calculate risk-weighted assets (RWAs), often resulting in underestimated risks and insufficient capital buffers. Moreover, Basel II did not adequately address liquidity risk, leverage, or the problem of banks being "too big to fail." The crisis highlighted how procyclicality, interconnectedness, and reliance on short-term wholesale funding could undermine global financial stability.
For a formal Basel IV framework to be initiated, there would similarly need to be a clear and broadly recognized regulatory trigger. This could be a combination of:
Regulatory trigger 1: A new financial crisis or systemic shock reveals that Basel III, even in its final form, is inadequate.
Regulatory trigger 2: The rise of non-bank financial intermediation (NBFI), sometimes referred to as the “shadow banking” sector.
Regulatory trigger 3: Major hybrid attacks that cause widespread banking losses or systemic contagion. Geopolitical shocks, and the weaponization of the global payments system might highlight areas where the existing Basel III framework is silent or insufficient.
Step 2: Once the need for reform is recognized, the BCBS would initiate a structured consultation process designed to foster dialogue, promote transparency, and ensure that the proposed changes are practical, proportionate, and effective across a diverse range of jurisdictions and banking systems.
This process typically begins with the publication of discussion papers and consultative documents. These documents present the BCBS’s preliminary analysis of the issue or weakness identified in the current framework, outline proposed policy options or reforms, explaining the rationale behind them, and they often include quantitative impact assessments (QIS), model assumptions, or hypothetical scenarios to illustrate how the changes might affect banks of different sizes, business models, or regions.
Most importantly, they invite public feedback from a wide range of stakeholders. The BCBS’s consultation process is global and inclusive. Feedback is typically sought from banks and banking associations that would be directly affected by the changes, national supervisors and central banks, who are responsible for implementation and enforcement, academics and research institutions, who can provide theoretical and empirical insights, industry groups and professional associations, and others.
Consultation periods are usually open for several months. The BCBS carefully reviews responses. In some cases, major concerns raised during the consultation phase lead to substantial revisions or even abandonment of certain proposals.
A good example is the BCBS’s consultation on the fundamental review of the trading book. Initial proposals were met with considerable resistance due to their complexity and the potential for unintended consequences. After extensive feedback, the Committee revised the framework to simplify its application while maintaining its core objectives.
Another important aspect of this step is the Quantitative Impact Study (QIS), which collects data from a large sample of banks to estimate how the proposed reforms would affect capital requirements, risk-weighted assets, and other metrics. These studies help the BCBS assess whether the reforms would have disproportionate effects on certain types of institutions, markets, or regions, and adjust accordingly.
The consultation process is not merely a formality. It reflects the global nature of the Basel standards, which must be applicable across advanced and emerging economies, large international banks and smaller domestic institutions, and jurisdictions with different legal and supervisory traditions.
Ultimately, the consultation process ensures that the framework is technically sound, operationally feasible, and politically acceptable. It also helps build consensus and fosters a sense of shared ownership among regulators and market participants, an essential factor in achieving broad and consistent implementation.
Step 3: Once the consultation period concludes, the Basel Committee on Banking Supervision (BCBS) begins the process of finalizing the proposed reforms. This is a critical technical phase in which the Committee carefully balances policy objectives with the practical considerations raised by banks, regulators, academics, and other interested parties.
The BCBS will assess whether the reforms, as initially proposed, achieve the intended goals, while avoiding unintended consequences like excessive complexity, procyclicality, or disproportionate impacts on certain markets or institutions.
The result of this effort is a draft final framework, which reflects both the Committee’s regulatory objectives and the input of a diverse group of stakeholders. However, this draft, no matter how well-developed, is not yet official. It must still undergo a crucial approval process at the highest level.
Step 4: Before any Basel framework can be formally adopted, it must receive the endorsement of the Group of Governors and Heads of Supervision (GHOS), the oversight body of the BCBS. The GHOS is composed of central bank governors and heads of national supervisory authorities from the key jurisdictions represented on the Basel Committee.
The role of the GHOS is not merely ceremonial. Its approval carries significant political and institutional weight, signaling that the proposed framework has achieved not only technical consensus within the BCBS, but also strategic alignment at the leadership level. This step is critical for several reasons:
- Political legitimacy: The GHOS ensures that the final framework reflects the policy priorities and economic realities of its member jurisdictions, which include both advanced economies and emerging markets.
- Strategic coherence: It guarantees that the framework fits within broader global financial stability efforts and aligns with other international initiatives, such as those led by the Financial Stability Board (FSB) or the International Monetary Fund (IMF).
- Commitment to implementation: GHOS endorsement reflects a high-level commitment by national authorities to implement the agreed framework in their domestic regulatory systems.
Step 5: Once the Group of Governors and Heads of Supervision (GHOS) formally endorses the final version of the framework, the Basel Committee on Banking Supervision (BCBS) proceeds to publish the standard. This marks the official release of the new Basel framework, whether as an update to existing rules or as a comprehensive new standard.
The implementation timeline is an essential component. It often includes phase-in arrangements that allow jurisdictions and financial institutions to gradually adjust to the new requirements. This phased approach is intended to provide sufficient time for banks to update internal systems, recalibrate models, train staff, and ensure compliance, while also giving regulators the time needed to develop supporting rules and supervisory tools.
For example, the final Basel III reforms (sometimes referred to informally as “Basel IV”) were published in December 2017, with initial implementation dates set for January 2022. However, due to the COVID-19 pandemic and other factors, the timeline was later extended to January 2025 for some components. This flexibility highlights the importance of balancing regulatory ambition with practical feasibility.
Step 6: Even after the international framework is finalized and published, it does not become legally binding or enforceable until it is implemented by individual jurisdictions. This crucial phase is known as transposition, the process by which each country or region adapts the Basel standards into its own legal, regulatory, and supervisory framework.
The process of transposition varies widely across jurisdictions, depending on the complexity of the local legal system, regulatory priorities, the structure of the banking sector, and political dynamics.
For example, the European Union implements Basel standards through EU regulations and directives, primarily via the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD), which are then applied across all member states. In the United States, multiple agencies, including the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), coordinate to adapt the Basel standards into U.S. banking regulations.
While the Basel Committee encourages full, timely, and consistent implementation of its standards, it does not have enforcement power. As a result, implementation outcomes are subject to variation, which can lead to differences in regulatory burdens and competitive conditions across countries.
To promote transparency and consistency, the BCBS conducts regular monitoring and assessment of implementation through its Regulatory Consistency Assessment Programme (RCAP). These assessments help identify gaps, delays, or deviations from the agreed standards, and encourage greater alignment among jurisdictions.
The publication of a Basel framework marks the beginning, not the end of the implementation journey. Achieving meaningful impact requires coordinated effort at the national level to turn international standards into enforceable rules that shape the behavior of banks and supervisors in practice.
At the Basel III Compliance Professionals Association (BiiiCPA), we are committed to helping professionals stay informed, prepared, and confident in navigating evolving international regulatory frameworks. As discussions continue and the Basel landscape develops, we invite you to follow the journey with us, step by step, insight by insight.
Enjoy the journey.
