What is the output floor?

A floor that prevents risk-weighted assets (RWAs) calculated with internal models from falling below 72.5% of those that would result from the standardised approach. It limits the capital benefit of internal models and is phased in with transitional periods.

When does it apply in the EU?

The CRR III / CRD VI package implementing the final Basel tranche has applied in the European Union since 1 January 2025, with transitional provisions for several items (including the output floor itself).

How does it relate to FRTB?

FRTB (Fundamental Review of the Trading Book) is the market risk component of the Basel framework. It is one of the elements recalculated under both the standardised and internal approaches, and therefore feeds into the output floor calculation.

Glossary · EU regulation · Capital

Basel III / IV — capital, liquidity and the output floor

Basel III/IV is the Basel Committee's prudential framework for bank capital, liquidity and leverage, transposed in the EU via CRR/CRD. Its final tranche —known as "Basel IV" and applicable in the EU from January 2025 (CRR III)— introduces the output floor: a 72.5% floor that limits how much capital internal models can save relative to the standardised approach.

What it covers

Capital — more and better capital (CET1 ratio), conservation and countercyclical buffers.
Liquidity — liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).
Leverage — leverage ratio as a non-risk-based backstop.
Output floor — RWAs from internal models cannot fall below 72.5% of standardised-approach RWAs (with transitional arrangements).

The impact on systems

The output floor forces risk-weighted assets (RWAs) to be calculated under the standardised and internal approaches in parallel, keeping the higher figure. That doubles the computational load, requires data that is consistent across both approaches, and demands the compute capacity to recalculate at portfolio level. SA/IMA coexistence and the associated reporting are, in practice, a data and HPC challenge.

How Vermont Solutions helps

Compute infrastructure for capital and RWA

We design and operate the HPC capacity needed to recalculate RWAs under the standardised and internal approaches in parallel, with grids on IBM Spectrum Symphony and data that stays consistent across approaches.

See HPC and Grid Computing →

Fuentes

Basel III framework — Basel Committee (BIS)

Last updated: 2026-06-19. Editorial content by Vermont Solutions, citable with attribution. This does not constitute regulatory advice; verify the current version of the CRR/CRD and of Basel.