Basel 3.1 Reporting: Risk Weights, Property Market, Social Housing & Data Governance – S2E8

Basel 3.1 Reporting: Risk Weights, Property Market, Social Housing & Data Governance – S2E8

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Hosted By Jawad Akhtar

Episode show notes

Welcome to FinTalk, the leading podcast in Financial Services that addresses the most pressing topics in the FinTech and RegTech.

In this episode, our host Jawad Akhtar talks with Oivind Andresen, a leading expert in financial regulations, to explore Basel 3.1 and its profound implications for the financial services industry. They discuss mortgage markets, risk weights, the Prudential Regulation Authority’s (PRA) role, capital requirements, compliance, and data governance.

This episode of FinTalk covers:

  • The introduction of Basel 3.1, its impact on commercial property mortgages, and the relationship between loan-to-value (LTV) bands and risk weights.
  • How Basel 3.1 changes will impact capital requirements, particularly for firms involved in social housing.
  • The PRA’s role in setting regulations and their stance on risk weights, social housing, and the January 2025 implementation date.
  • Importance of firms undertaking impact analysis to understand the changes required by the new rules.
  • The removal of the SME factor and its fundamental impact on the industry.
  • Emphasizing the importance of regulatory reporting, compliance, and data management for firms to align with Basel 3.1.
  • Mention of the PRA’s consultation paper and its influence on firms’ responses to the proposed regulations.

Episode highlights

“And this is quite critical because at the moment under the current UK CRR, loan to value is based on the market value of the property. And if firms are allowed to use, I guess, sort of automated valuation methods for example, so looking at computer models to see actually how much is your property worth, and that’s kind of what you use for loan to value calculation. However, for Basel 3.1, the proposals are actually, it’s much more strict the way you value the property and it has to be on the original value. So you have to go and basically use that value at the start, and a year later the property revalues, you still had to stick with the original value. So that comes back to my point that although some of the risk weights may be lower in the low to value bands, because you can go as low as 20% for example. You’ll still have probably be offset by the original value.”

– Oivind Andresen (06:37)


“I think one thing to say as well, if you look at the wider kind of property market is that the big banks on the IRB model, they will have what we call a sort of capital floor introduced at 75, 72.5% of the standardized risk weight. So basically we see some of the very biggest banks in the UK at the moment having a risk weight of 10% for residential mortgages and having a huge benefit. Now actually, they will also have to do a standardized calculation and then the capital requirement will be floored at 72.5% of that. So I think that will actually improve some of the competitiveness and be beneficial to, I guess, some of your customers. So there’s a bit of give and take, but I think there’s overall, I think there’s more result in increased capital requirements.”

– Oivind Andresen (15:02)