Regulators complete Basel II with trading book rules

BASEL, Switzerland, July 18 (Global Risk Regulator) – Global banking supervisors today wrapped up unfinished Basel II business by issuing the rules that will apply to a bank’s trading activities and to so-called double default under the complex bank safety regime.

The Basel Committee on Banking Supervision, the body of top banking supervisors from North America, Europe and Japan that devised the risk-focused Basel II bank capital adequacy rules, believes its proposals will significantly increase the risk sensitivity of the regulatory capital requirements for these exposures.

Banks and industry bodies had criticised earlier proposals for being overly conservative in estimating the capital needed to absorb surprise losses from their trading in financial markets, including counterparty credit risk. The same criticism applied to the treatment of double default effects, or the risk that both a borrower and a guarantor might default on the same obligation.

Today’s publication means the Basel-II treatment of bank trading books will be available for testing, along with the rest of the Basel II framework, under QIS5 - the fifth quantitative impact study of the effects of the regime that the Basel Committee plans to carry out among banks in several countries between October and December.

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