Framework Comparison¶

This page provides a comprehensive comparison between CRR (Basel 3.0) and Basel 3.1 frameworks.

Overview¶

Exposure Class Restructuring¶

Basel 3.1 restructures SA exposure classes with an explicit priority waterfall (PRA PS1/26 Art. 112, Table A2). The most significant structural change is that real estate becomes a standalone exposure class, rather than being a sub-treatment of secured corporate or retail exposures under CRR Art. 125/126.

New priority waterfall (highest to lowest):

1. Securitisation positions
2. CIU units/shares
3. Subordinated debt, equity and own funds instruments
4. Exposures associated with particularly high risk
5. Exposures in default
6. Eligible covered bonds
7. Real estate exposures (new standalone class)
8. International organisations
9. Multilateral development banks
10. Institutions
11. Central governments / central banks
12. Regional governments / local authorities
13. Public sector entities
14. Retail exposures
15. Corporates
16. Other items

Where an exposure meets multiple criteria, the highest-priority class applies.

IRB Treatment¶

Scaling Factor¶

# 6% uplift on all IRB RWA
RWA = K × 12.5 × EAD × MA × 1.06

# No scaling factor
RWA = K × 12.5 × EAD × MA

Impact: ~5.7% reduction in IRB RWA (before output floor)

Output Floor¶

Example:
- SA RWA: £100m
- IRB RWA: £30m
- Final RWA: £30m (70% capital saving)

Example:
- SA RWA: £100m
- IRB RWA: £30m
- Floor: £100m × 72.5% = £72.5m
- Final RWA: £72.5m (27.5% capital saving only)

PD Floors¶

LGD Floors (A-IRB Only)¶

Corporate / Institution:

Retail:

Note: The retail unsecured LGDU used in the LGD formula for secured exposures is 30%* (Art. 164(4)(c)), compared to 25% for corporates (Art. 161(5)(b)).

*LGDS values reflect PRA PS1/26 implementation. BCBS standard values differ (Receivables: 15%, CRE: 10%, RRE: 10%, Other Physical: 20%).

F-IRB Supervisory LGD¶

IRB Approach Restrictions¶

Basel 3.1 introduces two levels of IRB restriction (Art. 147A):

• Complete IRB removal — certain exposure classes must use the Standardised Approach; IRB (both F-IRB and A-IRB) is no longer permitted.
• A-IRB removal — own-LGD estimates are removed; only F-IRB (supervisory LGD) is allowed.

Quasi-sovereign scope (Art. 147(3)): The central governments/central banks class includes regional governments, local authorities, PSEs, MDBs, and international organisations that receive a 0% SA risk weight. Under Basel 3.1, all of these entities are mandatorily SA.

IRB 10% RW floor for UK residential mortgages (PRA-specific): Non-defaulted retail exposures secured by UK residential property must have a minimum risk weight of 10% under IRB, regardless of model output (applied as post-model adjustment).

Financial Sector Correlation Multiplier¶

Under both CRR and Basel 3.1, large financial sector entities and unregulated financial sector entities receive a 1.25x correlation multiplier on their asset correlation (Art. 153(2) / CRE31.5). This is unchanged between frameworks. Note: this applies to financial sector entities specifically, not to all large corporates (>£440m revenue) — those are restricted to F-IRB but use the standard correlation formula.

A-IRB CCF Floor¶

Under Basel 3.1, A-IRB own-estimate CCFs must be at least 50% of the SA CCF for the same item type (CRE32.27). This constrains A-IRB benefit from low CCF estimates.

Post-Model Adjustments (PMAs)¶

Basel 3.1 introduces mandatory post-model adjustments (Art. 146(3)) — a new concept with no CRR equivalent. When an IRB rating system does not comply with IRB requirements and the non-compliance causes a material reduction in RWA or EL, the institution must quantify additive adjustments to offset the impact:

PMAs are included in the output floor calculation base, so they cannot be avoided by flooring to SA. They persist until the model non-compliance is remediated.

Supporting Factors¶

SME Supporting Factor¶

# Tiered approach
threshold = EUR 2.5m  # GBP 2.2m

if exposure <= threshold:
    factor = 0.7619  # 23.81% reduction
else:
    factor = (threshold × 0.7619 + (exposure - threshold) × 0.85) / exposure

Infrastructure Supporting Factor¶

factor = 0.75  # 25% reduction
RWA_adjusted = RWA × 0.75

SA Risk Weights¶

Corporate¶

New Basel 3.1 Corporate Sub-Categories (CRE20.47-49)¶

Institution Exposures¶

Basel 3.1 replaces the CRR institution risk weight approach with two distinct methods:

Rated institutions — ECRA (External Credit Risk Assessment Approach):

Unrated institutions — SCRA (Standardised Credit Risk Assessment Approach):

Under CRR, unrated institutions use the sovereign-based approach. The SCRA represents a fundamentally different methodology based on the institution's own capital adequacy.

Sovereign floor: Unrated institution risk weights cannot be lower than their sovereign's risk weight.

Residential Real Estate¶

General (not cash-flow dependent) — PRA Art. 124F: Loan-Splitting

The PRA adopted loan-splitting (not the BCBS whole-loan LTV-band table):

Example: At 80% LTV, secured share = 55%/80% = 68.75%. Weighted RW = 20%×0.6875 + 75%×0.3125 = 37.2% (vs CRR 35%).

Income-producing (cash-flow dependent) — PRA Art. 124G, Table 6B: Whole-Loan

Commercial Real Estate¶

ADC Exposures (CRE20.85)¶

Retail Exposures¶

Transactor status requires full repayment each billing cycle. Payroll/pension loans are a new Basel 3.1 category for loans repaid directly from salary or pension.

Currency Mismatch Multiplier (CRE20.76)¶

Applies when lending currency differs from borrower's income currency and the exposure is not hedged. Distinct from the 8% FX collateral haircut in CRM.

Subordinated Debt¶

Equity Exposures¶

IRB is removed for equity under Basel 3.1 — SA only. The PD/LGD method (CRR Art. 155) is blanked in the final rules.

SA transitional phase-in schedule (Art. 4.2/4.3):

IRB transitional (Art. 4.4–4.6): Firms that had IRB permission for equities on 31 December 2026 use the higher of:

• the risk weight from their old IRB methodology (PD/LGD method under CRR Art. 155, as in force on 31 Dec 2026), and
• the transitional SA risk weight from the schedule above.

This provides a floor-based transition — IRB firms don't immediately jump to SA weights, but cannot produce risk weights below the transitional SA schedule.

Opt-out (Art. 4.9–4.10): Firms may elect to skip the transitional and apply full Basel 3.1 weights immediately. This election is irrevocable and requires prior PRA notification.

CIU Exposures¶

Basel 3.1 retains the same three approaches for CIUs as CRR, but the removal of IRB for equity underlyings has a material impact:

Under CRR, IRB firms could apply the simple risk weight approach (Art. 155(2)) to equity underlyings in CIUs, producing lower risk weights via PD/LGD. Under Basel 3.1, Art. 155 is removed — equity underlyings must use SA 250%/400% even when applying look-through under IRB.

CIU transitional (Art. 4.7–4.8): During the 3-year transition period (2027–2029), for firms with IRB permission on 31 December 2026, CIU equity underlyings that were subject to the simple risk weight approach use the higher of:

• the old simple risk weight (CRR Art. 155(2), as in force before 1 Jan 2027), and
• the transitional SA equity weights from the schedule above.

The same opt-out (Art. 4.9–4.10) applies — firms can skip the CIU transitional alongside the equity transitional, but the election covers both and is irrevocable.

Defaulted Exposures¶

Provision-coverage-based differentiation (CRE20.87-90) is not currently implemented in the SA calculator — defaulted treatment with provision coverage is handled through IRB. The flat 100% for defaulted residential RE (not cash-flow dependent) is a Basel 3.1 simplification.

Regional Governments and Local Authorities¶

Basel 3.1 introduces a tiered approach (PRA PS1/26 Art. 115):

Covered Bonds¶

Credit Conversion Factors¶

Slotting Risk Weights¶

Project Finance¶

Other Specialised Lending (OF, CF, IPRE)¶

HVCRE¶

Note: Under CRR, HVCRE has a separate risk weight table (Art. 153(5) Table 2) with higher weights than non-HVCRE.

SA Specialised Lending (Art. 122A-122B)¶

Basel 3.1 introduces explicit SA risk weights for specialised lending, separate from the IRB slotting approach above:

Under CRR, specialised lending under SA simply uses the corporate risk weight. Basel 3.1 provides differentiated weights that recognise the specific risk profile of each type.

Credit Risk Mitigation Changes¶

Method Taxonomy¶

Basel 3.1 restructures CRM with clearer method names and explicit applicability rules (PRA PS1/26 Art. 191A):

Haircut Changes¶

Significant increases for equities and long-dated bonds. Maturity bands expand from 3 to 5.

CRR maturity bands: 0-1y, 1-5y, 5y+. Basel 3.1 maturity bands: 0-1y, 1-3y, 3-5y, 5-10y, 10y+.

Overcollateralisation (Foundation Collateral Method)¶

Unfunded Credit Protection¶

New requirement: unfunded credit protection must not be unilaterally cancellable or changeable by the protection provider (Art. 213(1)(c)(i)). The "or change" condition is new in Basel 3.1. Transitional relief for contracts entered before 1 January 2027 until June 2028 waives the "or change" requirement for legacy contracts.

Impact Analysis¶

Low-Risk Portfolios (Strong IRB Models)¶

Scenario: High-quality corporate portfolio
- PD: 0.10%
- LGD: 40%
- SA RW equivalent: 80%

CRR:
- IRB K: ~2%
- IRB RW: ~25% (after 1.06)
- Capital saving vs SA: 69%

Basel 3.1:
- IRB K: ~1.9% (no scaling)
- IRB RW: ~24%
- Floor: 80% × 72.5% = 58%
- Final RW: 58%
- Capital saving vs SA: 28%

SME Portfolio¶

Scenario: £5m SME exposure, 100% SA RW

CRR:
- SME Factor: 0.811
- Effective RW: 81.1%
- Saving: 18.9%

Basel 3.1:
- SME Factor: None
- Effective RW: 100%
- Saving: 0%

Infrastructure Project¶

Scenario: Qualifying infrastructure, 100% SA RW

CRR:
- Infrastructure Factor: 0.75
- Effective RW: 75%
- Saving: 25%

Basel 3.1:
- Infrastructure Factor: None
- Effective RW: 100%
- Saving: 0%

Configuration Comparison¶

from datetime import date
from rwa_calc.contracts.config import CalculationConfig

config = CalculationConfig.crr(
    reporting_date=date(2026, 12, 31),
)

# Internally sets:
# - scaling_factor: 1.06
# - output_floor: None
# - pd_floor: 0.0003 (uniform)
# - lgd_floors: None

from datetime import date
from rwa_calc.contracts.config import CalculationConfig

config = CalculationConfig.basel_3_1(
    reporting_date=date(2027, 1, 1),
)

# Internally sets:
# - scaling_factor: 1.0 (removed)
# - output_floor: 72.5%
# - pd_floors: differentiated by class
# - lgd_floors: by collateral type

Summary of Capital Impact¶

Transition Planning¶

Key Dates¶

Recommended Actions¶

1. Impact Assessment: Run calculations under both frameworks
2. Data Quality: Ensure LTV data available for SA RE
3. Model Updates: Review IRB models for floor compliance
4. Process Changes: Update reporting for dual calculation

See Also¶

• CRR Details — current framework in depth
• Basel 3.1 Details — future framework in depth
• Reporting Differences — COREP template changes
• Impact Analysis — comparison tooling and capital attribution
• Technical Reference — developer-facing parameter specification
• Configuration Guide — setting up both frameworks