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. … Read More
Basel Committee Proposes Non-Internal Model Method for Capitalizing Counterparty Credit Risk Exposures
Today, the Basel Committee proposed a non-internal model method (NIMM) for assessing the counterparty credit risk associated with derivative transactions. The proposal would, when finalized, replace the Basel capital framework’s existing methods for determining the credit exposure amount for derivatives, i.e., the Current Exposure Method (CEM) and the Standardized Approach.
According to the Basel Committee, NIMM improves the risk sensitivity of the CEM by differentiating between margined and unmargined trades. NIMM also revises certain supervisory factors to reflect the level of volatilities observed over the recent stress period and provides a more meaningful recognition of the benefits of legally enforceable netting agreements.… Read More
The Basel Committee has proposed a framework for measuring, reporting and limiting a bank’s exposures to single counterparties and groups of connected counterparties. The proposed large exposures framework, which borrows a number of concepts from the Basel capital framework, is intended to ensure greater international consistency in regulatory and supervisory approaches to large exposures and to act as a backstop to risk-based capital requirements. The Basel Committee expects national supervisors to implement the large exposures framework by January 1, 2019.
Comments on the proposed framework are due June 28, 2013. … Read More
The Federal Reserve has proposed a tiered approach for applying U.S. capital, liquidity and other Dodd-Frank enhanced prudential standards to the U.S. operations of foreign banking organizations with total global assets of $50 billion or more (“Large FBOs”). Most Large FBOs would have to create a separately capitalized top-tier U.S. intermediate holding company (“IHC”) that would hold all U.S. bank and nonbank subsidiaries. The IHC would be subject to U.S. capital, liquidity and other enhanced prudential standards on a consolidated basis.… Read More
In an unprecedented and provocative speech, Federal Reserve Governor Daniel K. Tarullo foreshadowed a proposal from the Federal Reserve Board that could fundamentally change the way foreign banks are regulated in the United States. As previewed, the proposal would require foreign banks with large operations in the U.S. to create a separately capitalized top-tier U.S. intermediate holding company (“IHC”) that would sit on top of all U.S. bank and nonbank subsidiaries. The IHC would be required independently to meet all U.S.… Read More