Today, the Basel Committee, in cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), proposed changes to the capital treatment of banks’ exposures to central counterparties (CCPs). The Basel Committee published an interim framework in July 2012 and noted at that time that additional work was needed to improve the capital framework. Prior to publication of the interim framework, the Basel Committee issued two other proposals on the topic in November 2011 and December 2010. Today’s proposal therefore represents the fourth time the Basel Committee has published standards on the capital treatment of banks’ exposures to CCPs in less than three years.
According to the Basel Committee, the proposed changes to the interim framework respond to evidence that application of the interim framework could lead both to instances of very little capital being held against exposures to some CCPs, and potentially in certain cases, to capital charges that are higher than for bilateral (non-centrally-cleared) transactions. There was also concern that, in some cases, the interim framework might not create the appropriate incentives for CCPs to maintain generous default funds.
The Basel Committee has not proposed any changes to the capital treatment of exposures to non-qualifying CCPs or the capital treatment of clearing member exposures to clients.
Comments on the proposal are due by September 27, 2013.
Basel Committee, Capital treatment of bank exposures to central counterparties – Consultative Document (Jun. 2013) available here: http://www.bis.org/publ/bcbs253.pdf