Basel Committee to tighten up rules after crisis

The Bank of International Settlements (BIS) committee that produced the Basel II capital adequacy rules says it will adapt its rules to prevent another credit crisis.

The Basel Committee said it would raise capital requirements for the structured credit products, such as collateralised debt obligations of asset-backed securities, at the root of the credit crisis. Liquidity facilities extended to off-balance-sheet vehicles would also be treated more harshly under the new rules, due to be published later this year.

The new rules will also be less dependent on value-at-risk, which the committee says has failed to capture "extraordinary events". Instead, complex products will carry an event risk surcharge, to be introduced over the next two years.

Banks' risk management, especially liquidity risk management, was shown to be inadequate by the crisis, the committee added. It plans to issue guidance and best-practice standards over the next four months to help them improve, and encouraged better disclosure of exposures, especially structured product portfolios.

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