Basel acts on private equity losses

The Basel Committee on Banking Supervision has issued a proposal for determining the capital reserves for bank equity exposures. It promises to be as controversial as the other aspects of the Basel II capital Accord.

The proposal was issued last month in the wake of a series of bank admissions of large private equity losses. For example, last month Deutsche Bank wrote down €700 million and in July JP Morgan Chase wrote down $1 billion.

The capital treatment of banking book equity investments – which ballooned during the late-1990s bullish stock market– has been a growing concern for regulators. US Federal Reserve chairman Alan Greenspan hinted at the risks of private equity’s growing share of bank assets