Under Basel IV, banks must hold capital of not €0.10 but €0.25 or more for every retail mortgage loan. This changes the bank's role as a lender and therefore its relationship with you as a borrower.
Basel IV rules
After Basel I, II and III, Basel IV is now due to come into force. Briefly, the Basel IV rules are about how systemic banks value their credit risks and assets on their balance sheets. The degree of risks assumed then determines the minimum capital a bank must hold. Here, the more capital, the safer the bank.
Hot topic
Banks are now allowed to calculate the risk on their mortgage portfolios using their own models, thus mitigating the higher capital requirements. For Dutch banks, about €0.10 of capital must be held for every euro of mortgage money outstanding. However, if it is up to Basel IV, banks will start applying standard models. This implies that the buffer for every private mortgage euro will not be €0.10 but above €0.25. The impact of this on banks' current weighted core capital ratios is substantial.
Measures
Banks are strongly lobbying for a delay in the introduction of standard models with regard to capital thresholds. They have also already taken a number of measures. These include increasing profitability and significant savings on people, offices and systems. To have a positive impact on capital ratios, bank balance sheets need further restructuring.
So we should slowly get used to a different role of banks in lending. By comparison, in the US, only 25 % of the economy is financed by banks. In Europe, the percentage is around 75%. The role of non-bank and alternative lending, think fintech and crowdfunding, is expected to grow.
Unexpected business loan run-off
For now, it seems that the introduction of standard calculation models has been postponed. To be sure, we do not expect this to happen until the end of this year.
Should you be faced with unexpected winding down of your business loan, or do you simply want to be future-proof financed and avoid unpleasant surprises? Xolv's specialists will be happy to advise you.
