Basel 3.1 Framework Differences¶

Key differences from CRR including output floor, PD/LGD floors, and removal of supporting factors.

Regulatory Reference: PRA PS1/26

Overview¶

Basel 3.1 (effective 1 January 2027 in the UK) introduces significant changes to the credit risk framework. The calculator supports both regimes via a configuration toggle.

Key Differences¶

Parameter	CRR (Current)	Basel 3.1	Reference
RWA Scaling Factor	1.06	Removed	—
SME Supporting Factor	0.7619 / 0.85	Removed	CRR Art. 501
Infrastructure Factor	0.75	Removed	CRR Art. 501a
Output Floor	None	72.5% of SA	PRA PS1/26
PD Floor	0.03% (all classes)	Differentiated	CRE30.55
A-IRB LGD Floors	None	Yes (by collateral type)	CRE30.41
Slotting Risk Weights	Maturity-differentiated	HVCRE + PF pre-op differentiated	PRA PS1/26

Differentiated PD Floors (Basel 3.1)¶

Exposure Class	PD Floor
Corporate	0.05%
Corporate SME	0.05%
Retail Mortgage	0.05%
Retail Other	0.05%
QRRE (Transactors)	0.03%
QRRE (Revolvers)	0.10%

A-IRB LGD Floors (Basel 3.1)¶

Collateral Type	LGD Floor
Unsecured (Senior)	25%
Unsecured (Subordinated)	50%
Financial collateral	0%
Receivables	10%*
Commercial real estate	10%*
Residential real estate	5%*
Other physical	15%*

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

F-IRB Supervisory LGD (CRE32)¶

Exposure Type	CRR	Basel 3.1
Corporate/Institution (Senior)	45%	40%
Corporate/Institution (Subordinated)	75%	75%
Secured - Financial Collateral	0%	0%
Secured - Receivables	35%	20%
Secured - CRE/RRE	35%	20%
Secured - Other Physical	40%	25%

Output Floor¶

The output floor ensures IRB RWA cannot fall below a percentage of what the SA would produce:

RWA_final = max(RWA_IRB, floor_percentage x RWA_SA)

Transitional Schedule¶

Year	Floor Percentage
2027	50.0%
2028	55.0%
2029	60.0%
2030	65.0%
2031	70.0%
2032+	72.5%

Output Floor Adjustment (OF-ADJ)¶

The full output floor formula from PRA PS1/26 Art. 92 is:

TREA = max(U-TREA, x × S-TREA + OF-ADJ)

Where:

U-TREA = un-floored total risk exposure (using internal models where permitted)
S-TREA = standardised total risk exposure (recalculated using SA only)
x = floor percentage (see transitional schedule above)
OF-ADJ = adjustment for the difference between IRB expected loss provisions treatment and SA general credit risk adjustments

OF-ADJ reconciles the different treatment of provisions: under IRB, expected loss shortfall adds to capital requirements while under SA, general credit risk adjustments reduce risk exposure. Without this adjustment, the floor comparison would not be on a like-for-like basis.

Supervisory Haircut Comparison¶

CRR Haircuts (3 maturity bands)¶

Collateral Type	0-1y	1-5y	5y+
Govt bonds CQS 1	0.5%	2%	4%
Govt bonds CQS 2-3	1%	3%	6%
Corp bonds CQS 1	1%	4%	8%
Corp bonds CQS 2-3	2%	6%	12%
Main index equities	15%	—	—
Other equities	25%	—	—
Gold	15%	—	—
Cash	0%	—	—

Basel 3.1 Haircuts (5 maturity bands)¶

Collateral Type	0-1y	1-3y	3-5y	5-10y	10y+
Govt bonds CQS 1	0.5%	2%	2%	4%	4%
Govt bonds CQS 2-3	1%	3%	4%	6%	12%
Corp bonds CQS 1	1%	4%	6%	10%	12%
Corp bonds CQS 2-3	2%	6%	8%	15%	15%
Main index equities	25%	—	—	—	—
Other equities	35%	—	—	—	—
Gold	15%	—	—	—	—
Cash	0%	—	—	—	—

Currency mismatch haircut remains 8% under both frameworks (CRR Art. 224 / CRE22.54).

Slotting Risk Weights (Basel 3.1)¶

Basel 3.1 (BCBS CRE33) introduces three distinct slotting weight tables:

Non-HVCRE Operational (OF, CF, IPRE, PF Operational)¶

Category	Risk Weight
Strong	70%
Good	90%
Satisfactory	115%
Weak	250%
Default	0% (EL)

Project Finance Pre-Operational¶

Category	Risk Weight
Strong	80%
Good	100%
Satisfactory	120%
Weak	350%
Default	0% (EL)

HVCRE¶

Category	Risk Weight
Strong	95%
Good	120%
Satisfactory	140%
Weak	250%
Default	0% (EL)

Slotting Subgrades¶

Basel 3.1 allows residual maturity-based differentiation within the Strong and Good categories using subgrades:

Category	Subgrade A (< 2.5yr residual)	Subgrade B (≥ 2.5yr residual)
Strong A / Strong B	50% / 70% (PF Operational)	70% / 70%
Good C / Good D	70% / 90% (PF Operational)	90% / 90%

IPRE "Strong A" requires specific criteria: low LTV, adequate tenant income, and no ADC characteristics. These subgrades provide finer risk differentiation within the broader slotting categories.

Compare with CRR slotting weights in the Slotting Approach specification.

Financial Institution Correlation Multiplier (CRE31.5)¶

The 1.25x correlation multiplier applies to exposures to financial institutions only (not non-financial corporates): - Regulated financial institutions with total assets above the applicable threshold: - CRR: EUR 70bn (Art. 153(2)) - BCBS/Basel 3.1: USD 100bn (CRE31.5) - Unregulated financial institutions regardless of size

This multiplier is already implemented via the requires_fi_scalar flag in the classifier and _polars_correlation_expr() in the IRB formulas. It applies under both CRR and Basel 3.1 frameworks.

Note: There is no separate "large corporate" correlation multiplier for non-financial corporates in either the BCBS standard or PRA PS1/26.

A-IRB CCF Floor (CRE32.27)¶

A-IRB own-estimate CCFs must be at least 50% of the SA CCF for the same item type.

IRB Maturity Calculation Changes¶

Basel 3.1 refines the IRB effective maturity (M) calculation (PRA PS1/26 Art. 162):

Aspect	CRR	Basel 3.1
Cash-flow schedule	Weighted average of cash flows	Same: `M = max(1, min(Σ(t×CF_t)/Σ(CF_t), 5))`
Revolving exposures	Repayment date of current drawing	Maximum contractual termination date
Floor	1 year	1 year
Cap	5 years	5 years

The revolving maturity change is significant — it typically increases M for revolving facilities, leading to higher maturity adjustments and therefore higher capital.

Configuration¶

Switch between frameworks using the configuration factory:

from rwa_calc.contracts.config import CalculationConfig

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

# Basel 3.1
config = CalculationConfig.basel_3_1(reporting_date=date(2027, 1, 1))