Basel Committee plans new default risk capital requirements
Consultation will explore new measures in response to credit crunch
The Basel Committee is planning to introduce a new requirement for capital to be held against default risk, in response to widespread difficulties institutions have experienced during the global credit crunch.
At the end of its October meeting, the Committee announced it “has been working to introduce new standards for banks to hold capital against the default risk associated with complex, less liquid credit products in the trading book”.
“The Committee agreed to seek public consultation on the proposed standards and to assess their impact on banks' capital requirements,” it continued.
The Committee offered no further details on the proposals or a timeframe within which it expects to commence consultation.
The announcement was not wholly unexpected. Earlier this year, the Committee initiated a review of jurisdictions' approaches to supervising and regulating funding liquidity risk, taking into account lessons learned from the recent market turbulence. The review focuses on how liquidity risk is assessed by banks and supervisors under the assumption of stressed market conditions, as well as the risks related to off-balance-sheet exposures.
Basel II has come in for criticism in recent months over the role it might or might not have played in lessening the impact of the subprime mortgage meltdown. Observers have suggested the accord has encouraged the securitisation of mortgage pools to move the holdings off balance sheet, thereby avoiding the requirement to hold capital against them, and deepening the crisis.
The Committee, however, reiterated its belief that Basel II has paid dividends for compliant institutions since the subprime crisis began and pledged to continue to watch market events intently to identify exactly what effect the accord is having.
“Committee members agree that Basel II implementation will help make the capital base more relevant to banks' changing risk profiles and that the Committee will closely monitor its impact. The framework will also serve to create incentives for better risk measurement and management, including for securitisation exposures,” the Committee concluded.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
Benchmark switch leaves hedging headache for Philippine banks
If interest rates are cut before new benchmark docs are ready, banks face possible NII squeeze
Op risk data: Tech glitch gives customers unlimited funds
Also: Payback for slow Paycheck Protection payouts; SEC hits out at AI washing. Data by ORX News
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Top 10 op risks: Change brings challenges as banks splash the cash
Higher interest margins and a trend toward insourcing drive major tech projects
Top 10 op risks: deepfakes drive rise in fraud fears
External fraud re-enters top 10 as artificial intelligence provides new tools for criminals
Should the ECB stress-test counterparty default risks?
The US Fed already does, but it is notable that EU banks were less exposed to Archegos
Most read
- Top 10 operational risks for 2024
- The American way: a stress-test substitute for Basel’s IRRBB?
- Filling gaps in market data with optimal transport