Optimizing Credit Risk Capital Allocation under Basel III Endgame: A Practical Framework Integrating SCCL and LLC Constraints

In the evolving global financial regulatory environment, the Basel III Endgame imposes stricter requirements on credit risk capital allocation, compelling banks to optimize their capital strategies while adhering to both microprudential and macroprudential principles. This paper investigates a practical optimization framework that integrates the Single Counterparty Credit Limit (SCCL) and Leveraged Loan Concentration (LLC) constraints into the allocation of credit risk capital. The methodology combines regulatory text analysis, quantitative modeling, and optimization simulations to evaluate the interactions of capital adequacy ratios, exposure concentration thresholds, and systemic stability. Results demonstrate that incorporating SCCL and LLC constraints enhances the efficiency of capital allocation, mitigates systemic vulnerabilities, and supports sustainable profitability under regulatory compliance. The conclusion suggests that the proposed framework provides valuable guidance for banks navigating Basel III Endgame requirements, offering both theoretical insight and practical applications for long-term financial stability.