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Basel Committee Issues Second Proposal on Fundamental Review of the Trading Book Capital Rules

Today, the Basel Committee issued a second proposal on the fundamental review of capital requirements for the trading book.

The first proposal, issued in May 2012, described a number of specific measures to improve trading book capital requirements.  The second proposal provides more detail on the approaches introduced in May 2012, and sets out a draft text for a revised market risk capital framework.

The key features of the proposed revised framework include:

  • A revised boundary between the trading book and banking book.
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U.S. Basel III Liquidity Coverage Ratio Proposal: Visual Memorandum

The U.S. banking agencies have issued a proposal to implement the Basel III liquidity coverage ratio (LCR) in the United States. The LCR requires large banking organizations to maintain a minimum amount of liquid assets to withstand a 30-day standardized supervisory liquidity stress scenario. The U.S. LCR proposal is more stringent than the Basel Committee’s LCR framework in several significant respects.

Davis Polk’s visual memorandum uses diagrams, flowcharts, timelines, examples and comparison tables to illustrate key aspects of the U.S. LCR proposal.…  Read More

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Advanced Approaches Capital Rules: Federal Reserve Issues Guidance for Implementing the Supervisory Formula Approach for Securitization Exposures

The Federal Reserve’s Basel Coordination Committee has issued guidance regarding supervisory expectations for determining the capital requirements on the underlying exposures (KIRB) input to the Supervisory Formula Approach (SFA) for securitization exposures and the flexibility afforded to advanced approaches banking organizations when dealing with data limitations.  Federal Reserve and OCC staff worked together on the development of this guidance.

Background:  The advanced approaches capital rules, originally adopted by the U.S. banking agencies in 2007, apply to the largest and most internationally active U.S.…  Read More

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Revised Tier 2 Eligibility Guidance in Federal Register Version of U.S. Basel III Final Rule

Today, the Federal Reserve’s and OCC’s U.S. Basel III final rule was published in the Federal Register.  There are a number of substantive, technical and stylistic differences between the Federal Register version and the July 2013 draft version of the U.S. Basel III final rule.  Among other things, the Federal Reserve and OCC clarified in the preamble to the Federal Register version that “subordinated debt instruments that qualify as tier 2 capital must be subordinated to general creditors, which generally means senior indebtedness, excluding trade creditors.” (emphasis added).…  Read More

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