Basel statement on risk transfer could halt legitimate trades, bankers warn

Basel Committee focuses on cost of protection in attempt to stamp out capital arbitrage, but dealers worry that sound trades will also suffer

A policeman with a stop sign
Basel Committee HQ

Banks are worried a regulatory decision to fire a shot across the bows of the risk transfer market last week will freeze activity, preventing legitimate trades from happening. The December 16 statement from the Basel Committee on Banking Supervision highlighted its concerns about deals with a high cost of protection – arguing, in effect, that under-pressure banks are so desperate to achieve the capital relief on offer in these trades that they are willing to pay more than the expected loss they

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