Skip to content

FRM Exam Part II · High-level Summary of Basel III Reforms

Basel III Implementation Timeline and Output Floor Phase-In

Updated 11 October 2026 · Fact-checked

The finalised Basel III standards were set to take effect from 1 January 2023. The output floor is phased in over six steps, from 50% on 1 January 2023 to 72.5% on 1 January 2028. Under the 2020 revision of the timetable, the date was deferred by one year to 1 January 2023 and the phase-in to 1 January 2028. You apply the floor to total risk-weighted assets.

Understand Implementation Timeline and Transitional Arrangements

Basel III was first issued in 2010. The finalised reforms (sometimes called Basel III finalisation, or informally Basel IV) were published in December 2017. They changed how banks compute credit risk, operational risk and CVA risk capital, and they added an output floor. Banks and supervisors needed time to build systems, so the Basel Committee set an implementation schedule.

The original date for the finalised standards was 1 January 2022. In March 2020, during the Covid-19 pandemic, the Group of Central Bank Governors and Heads of Supervision deferred it by one year to 1 January 2023. The output floor transition was extended by the same one year, so it finishes on 1 January 2028. The revised market risk framework (FRTB, January 2019 standard) was also deferred by one year, from 1 January 2022 to 1 January 2023.

The output floor limits how much a bank's internal models can reduce its capital. A bank's total risk-weighted assets (RWA) cannot fall below a set percentage of the RWA that would result from the standardised approaches. The percentage is 72.5% when fully phased in.

The floor is phased in step by step to avoid a sudden jump in capital requirements. The schedule is 50% in 2023, 55% in 2024, 60% in 2025, 65% in 2026, 70% in 2027 and 72.5% from 2028. The Basel text also lets national supervisors cap the increase in a bank's RWA caused by the floor during the phase-in years (2023-2027). The cap is 25% of the bank's RWA before the floor is applied. It is a transitional option available to supervisors, not a permanent feature, and it falls away when the floor reaches 72.5% on 1 January 2028.

Remember that these are Basel Committee dates. Basel standards are not law. Each jurisdiction must adopt them through its own rules, and actual national dates have differed and in some cases have been delayed further. In an exam, answer with the Basel Committee timetable unless the question states a local date.

Key formulas to remember

Output floor test
RWA = max(RWA under internal models; floor % × RWA under standardised approaches)
Applied to total RWA, not to each risk type separately.
Output floor phase-in schedule
2023: 50% | 2024: 55% | 2025: 60% | 2026: 65% | 2027: 70% | 2028: 72.5%
Rises by 5 percentage points a year, then a final 2.5 points in 2028.
Key dates (revised timetable)
Finalised standards: 1 January 2023 | Output floor fully phased in: 1 January 2028
Both were deferred one year in March 2020 (from 2022 and 2027).
Transitional cap on floor impact
Increase in RWA from the floor ≤ 25% × RWA before the floor
Optional supervisory cap during the phase-in years (2023-2027). It falls away when the floor reaches 72.5% on 1 January 2028.

How to solve Implementation Timeline and Transitional Arrangements questions

Questions on this topic test dates, percentages and the floor calculation. Use the same routine each time.

  1. 1Identify what is asked: a date, a phase-in percentage, or a capital number.
  2. 2Check whether the question uses the original timetable (2022 start, 2027 full floor) or the revised one (2023 start, 2028 full floor). Default to the revised one.
  3. 3If the year is given, read off the floor percentage from the schedule.
  4. 4Compute the standardised RWA floor: floor % × RWA under standardised approaches.
  5. 5Compare it with the internal-model RWA and take the higher number.
  6. 6If a transitional cap is mentioned, compute 25% of the pre-floor RWA and limit the increase to that amount.
  7. 7State the result and the interpretation: is the floor binding, and by how much did RWA rise?

Quickest way: Floor percentage and max test

When to use it: Use when a question gives a year and two RWA figures and asks for the final RWA.

  1. Write the schedule from memory: 50, 55, 60, 65, 70, 72.5 for 2023 to 2028.
  2. Multiply the standardised RWA by the percentage for that year.
  3. Take the larger of that result and the model RWA.
  4. If the floor result is larger, the floor is binding and the difference is the RWA add-on.
  5. For date questions, remember 2023 start and 2028 end, both one year later than the original plan.

Common mistakes in Implementation Timeline and Transitional Arrangements

  • Using the original dates (2022 and 2027) as the current timetable.

    Older study notes were written before the 2020 deferral.

    Fix: Remember the one-year delay: finalised standards from 1 January 2023, full floor from 1 January 2028.

  • Applying the floor percentage to the internal-model RWA.

    Students confuse which number is multiplied.

    Fix: Multiply the standardised-approach RWA by the floor percentage, then compare with the model RWA.

  • Stating the final floor as 70% or 75%.

    The 5-point steps make 70% look like the end, and 72.5% is an unusual number.

    Fix: The step to 70% is in 2027. The final level is 72.5% in 2028.

  • Applying the floor risk type by risk type.

    The standard changes several separate approaches, so students assume the floor works the same way.

    Fix: The floor applies to total RWA across credit, market and operational risk.

  • Treating the Basel timetable as binding law in every country.

    Basel standards are written as if mandatory.

    Fix: Basel standards need national adoption. Say that local dates can differ from the Basel Committee dates.

Worked examples

Example 1

A bank has internal-model total RWA of USD 60 billion and standardised-approach total RWA of USD 100 billion. Using the output floor level for 2025 in the Basel schedule, what is the bank's RWA, and is the floor binding?

Show the solution
  1. The 2025 floor is 60%.
  2. Floor RWA = 60% × 100 = USD 60 billion.
  3. Compare: model RWA is USD 60 billion and floor RWA is USD 60 billion. They are equal, so the floor is not above the model figure.
  4. Check another way: the model RWA is exactly 60% of the standardised RWA, so RWA = max(60; 60) = 60.

Answer: RWA is USD 60 billion. The floor is exactly at the model figure, so it adds nothing.

Example 2

In 2027 a bank has internal-model RWA of USD 70 billion and standardised RWA of USD 110 billion. Compute the RWA after the floor, and in 2028 the RWA after the fully phased-in floor. Ignore any transitional cap.

Show the solution
  1. The 2027 floor is 70%. Floor RWA = 0.70 × 110 = USD 77 billion.
  2. Model RWA is USD 70 billion, below USD 77 billion, so the floor binds. 2027 RWA = USD 77 billion.
  3. The 2028 floor is 72.5%. Floor RWA = 0.725 × 110 = USD 79.75 billion.
  4. Again this exceeds USD 70 billion. 2028 RWA = USD 79.75 billion.
  5. Extra RWA in 2028 versus the model figure = 79.75 − 70 = USD 9.75 billion.

Answer: 2027 RWA is USD 77 billion. 2028 RWA is USD 79.75 billion, so the floor adds USD 9.75 billion over the model figure.

Exam tips

  • Memorise two pairs of dates: the original (2022, 2027) and the revised (2023, 2028). Questions often test which is current.
  • Learn the schedule as 50, 55, 60, 65, 70, 72.5. The odd last step is a favourite distractor.
  • Always compute the floor on standardised RWA and take the maximum. Check whether the floor binds.
  • Watch for wording that says the floor applies to total RWA, not to each risk category.
  • If a question mentions national implementation, remember that Basel dates are Committee timetables and jurisdictions adopt them through their own rules.

Practice questions from High-level Summary of Basel III Reforms

Implementation Timeline and Transitional Arrangements: frequently asked questions

When do the finalised Basel III reforms take effect?

The Basel Committee timetable, after the March 2020 deferral, sets 1 January 2023 as the start date for the finalised standards. The output floor is phased in until 1 January 2028. Individual countries set their own legal dates.

What is the output floor phase-in schedule?

It starts at 50% in 2023 and rises to 55%, 60%, 65% and 70% in the following years. It reaches 72.5% in 2028. The floor is applied to total RWA.

Why was the Basel III timetable delayed?

In March 2020 the Group of Central Bank Governors and Heads of Supervision deferred the dates by one year. This gave banks and supervisors more capacity to respond to the operational and financial effects of the Covid-19 pandemic.

Does the output floor apply to each risk type?

No. It applies to total risk-weighted assets. A bank compares its model-based total RWA with the floor percentage times its standardised total RWA and uses the higher figure.