2nd edition
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Layout: pp030 – Produktionsbüro Heike Praetor, Berlin, Germany
Cover design: Christian Kalkert Buchkunst & Illustration, Birken-Honigsessen
Cover photo: © Esin Deniz – stock.adobe.com
Print ISBN: 978-3-527-50962-1
ePub ISBN: 978-3-527-82140-2
Unimpressed by John M. Keynes' motto “I would rather be roughly right than precisely wrong”, the Basel Committee on Banking Supervision is putting in motion the most comprehensive reform package in its entire supervisory history under the term “Basel IV”. The banking and financial market is a highly interconnected and dynamic system in which the strong connections make it almost impossible to assess the risks of the system under certain conditions. Moreover, supervision keeps pace with the financial sector's increasing complexity by penning more and progressively detailed rules for determining the minimum capital requirement for a bank's risk positions.
Currently, every European bank must observe approximately 40,000 legally binding requirements of the European Union. In the field of banking supervision, four thousand and one different rules have been set down on 34,019 pages. With a reading speed of 50 words per minute and one hour reading time per working day, you would need around 32 years to read all the pages! And because the rules are constantly changing, they can never be fully read and understood. Today it is almost impossible to find any banking supervisor or bank practitioner who is able to explain exactly the supervisory rules and their consequences. The scope and complexity of the rules are just too great.
Behind this book is a highly qualified, expert team committed to a necessary reduction of regulatory complexity by providing this important companion volume to the reams of legislation. Broad knowledge is an especially crucial characteristic for dealing with complex systems. The authors come from pertinent sectors and have many years of consulting experience. The team of authors is led by Martin Neisen and Stefan Röth, two publishers whose experience and reputation are a guarantee of quality.
This book presents the innovations of the Basel IV package in a concise, understandable and practice-oriented way. It is committed to an optimised view by focusing on all relevant aspects. It is an outstanding work which, thanks to its clear structure and intellectual rigour, allows the reader to “see the wood for the trees”.
I strongly recommended this volume to all scientific readers concerned with the development of banking supervision and risk management, as well as for practitioners interested in these issues. I hope this book will be openly received and widely distributed, and that the reader will find much of interest within these pages.
Professor Dr Hermann Schulte-Mattler – Dortmund, February 2016
Two years have passed since the publication of our book's first edition. These two years have seen an unprecedented dynamic in the area of banking regulation. Nearly all of the topics covered in the first edition are ripe for an update.
On the one hand, the Basel Committee on Banking Supervision published its final standards on those topics after the date of the editorial deadline of the first edition. Of note among these topics are the approaches for credit risk, CR SA and IRB, but also the methods for calculating capital requirements for operational risk and Credit Valuation Adjustments (CVA). And, of course, the capital floors responsible for the intensive debate that took until end of 2017 before a compromise was reached.
On the other hand, national rule-makers – and especially the European Union – have begun their work to transpose those rules already finalised by the Basel Committee before December 2017 into applicable law and regulations. At the time of the editorial deadline, this process is still ongoing and we have to rely on current drafts instead of finalised law. However, it is clear already that, for example, the EU will implement the Basel Committee's proposals – adding some elements of proportionality where adequate – that may inform other jurisdictions choice as well, when it comes to devising rules for smaller, less complex institutions.
Both changes are reflected in the following pages. We hope, this will make this book worthwhile even for readers of the first edition.
Our thanks to the individual authors for their contributions and to Professor Dr Schulte-Mattler for the Foreword.
Martin Neisen and Stefan Röth – Frankfurt, 30 March 2018