Filter furore: EU countries set to shield banks from bond volatility
It was the toughest part of Basel III for the US to swallow – a requirement that unrealised gains and losses on some bonds would hit bank capital calculations. In Europe, legislators provided an opt-out – and some countries have already chosen to use it, in breach of the Basel text. Lukas Becker reports
During 2012, Allied Irish Banks (AIB) saw €553 million wiped from the value of government bonds it was holding – a loss equivalent to just more than 5% of its Tier I capital. Happily for the bank, it did not have to take the hit because the bonds were held in its available-for-sale (AFS) portfolio, and Basel II filters AFS volatility out of regulatory capital numbers. Even more happily, while this
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