Moody’s: Basel II and CRD changes ‘positive for banks' creditworthiness’

Rating agency Moody’s has issued a special comment paper saying changes to Basel II will be “positive for banks’ creditworthiness”.

The paper, issued today, focuses on amendments already introduced, together with statements from the Basel Committee on Banking Supervision in conjunction with the G-20.

Entitled Recent changes to Basel II and the EU CRD: Roadmap for investors ahead of the Pittsburgh G-20 meeting, the paper highlights the role of the amendments proposed by the Basel Committee in January. Those enhancements were approved as final recommendations on July 13, relating to bank trading books, securitisations and counterparty credit risks.

The report says a view of what is to come can be gauged from documents published by the G-20 and the Basel Committee on Banking Supervision on September 5 and 7, respectively.

Those recommendations include further strengthening Tier I capital as well as introducing tougher liquidity standards, counter-cyclical provisioning, systemic risk provisions, and using a leverage ratio as a “supplementary measure”.

Moody’s goes on to say that changes to the quality of capital and securitisation introduced to the EU Capital Requirements Directive (CRD) – the European vehicle for Basel II implementation – are likewise a positive step for banks, being broadly based on the Basel Committee’s recommendations.

“One important amendment calls for stricter operational requirements for credit analysis for banks holding securitisation exposures,” says the paper. “Failure to comply with these requirements will result in the banks having to fully deduct the securitisation exposure from capital. We believe that the increased requirement for credit analysis for banks holding securitised exposures is going to be an important element of improved risk management, and should ensure that only banks with the necessary information and analytical tools hold securitised products.”