IMPLEMENTATION OF BASEL IV – EUROPEAN COMMISSION PROPOSAL ON CRR3
Background & Challenges
On October 27, 2021, the European Commission published a new framework for banking risk management designed to strengthen banks’ resilience and better prepare them for the future.
The package consists of three parts:
- Implementation of the final Basel Accord (Basel IV/CRR3)
- Banks' Contribution to Green Finance
- Strengthened banking supervision (ensuring sound management of EU banks and safeguarding financial stability)
Under the new Basel IV requirements, the European Commission’s key proposed amendment concerns capital requirements, known as CRR3, which cover credit risk, credit valuation adjustment risk, market risk, and the capital floor.
To address this new credit risk management framework, Société Générale engaged one of our consultants to lead a project aimed at implementing a dual credit risk calculation engine that simultaneously accounts for both CRR2 requirements and the new requirements introduced by the CRR3 amendment.
Solution
Quanteam helped the client implement a new-generation engine using AWS Fargate and AWS Step Functions. Our consultant’s expertise enabled us to meet the client’s needs by developing a new API organized into independent computational components and aligned with the credit risk business function.
To address this client need, our consultant was involved in all four phases of the project during the course of his assignment:
- Track 01: Development of a new technical foundation (with a new data model)
- Stream 02: Implementation of the CRR3 regulatory package
- Stream 03: Static Certification of Metrics
- Stream 04: Dynamic Metrics Certification
For each phase, our consultant contributed their expertise in project scoping, committee procedures and project management, defining testing strategies, certification, and production deployment.
Benefits for the customer:
Our dual expertise in project management and our in-depth knowledge of credit risk enabled the client to:
- Development of a dual-calculation equity model for all types of risk
- Implementation of the Basel "Revised Standard" approach for calculating the output floor
- Update the internal Basel II model-based rating approach calculation features
- Implementation of new risk weights for the “Specialized Financing” asset class
- Implementation of a dual calculation system in the RWA engine for quantifying the floor capital
- Smart management of credit risk weighting calculations in accordance with the new CRR3 requirements
- Consolidation of processes and architectures to optimize operations and align results
- Process optimization and audit trails
- Integration of the new PD, LGD, and CCF models into the new dual-calculation framework
Quanteam’s expertise makes all the difference
- Extensive knowledge of the European banking and regulatory environment
- A team of consultants assembled specifically for this consulting assignment
- A team of consultants dedicated to supporting finance and risk departments with their regulatory and operational transformation challenges
- A team of consultants to develop a new-generation calculation engine for risk quantification
- Proven experience in modeling credit and counterparty risks
- Experience in developing models for calculating IFRS 9 provisions
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