Isda gives cautious welcome to Basel Committee progress report

The International Swaps and Derivatives Association today issued a cautious welcome to the Basel Committee on Banking Supervision’s latest progress report on the state of the new capital adequacy directive, Basel II.

Isda said it “strongly welcomes” the committee’s decision to set up a new working group to review its capital treatment of bank trading books. Isda, and the financial services community, have heavily petitioned Basel regulators to review trading book procedures, believing the current Basel II proposals to be too punitive.

“We had long been advocating the creation of such a group and hope that it can be established as soon as possible,” said Emmanuelle Sebton, head of risk management at Isda. She added that Isda was ready to make its recommendations. The committee did not provide a timeframe for the group's establishment.

The committee, which released a Basel II update paper yesterday, made a host of concessions to banks, including several modifications to its internal ratings-based approach to securitisation exposures. These were designed to align Basel II more closely with industry practice. The move follows industry complaints that the initial proposals were too complex.

The committee also agreed to refine the rules for recognising credit risk mitigation techniques, and said it would review counterparty credit risk issues.

Basel regulators said they agreed with industry comments that the cap on the recognition of excess provisions should not be based on ‘tier 2’ capital components. It has decided instead to convert the cap to a percentage of credit-weighted assets, which has yet to be determined.

The Basel Committee plans to next meet in May this year.