Basel Committee consults on outstanding trading book issues: The Basel Committee is consulting on the outstanding issues for its fundamental review of the trading book capital standards. It suggests refinements in three areas:

  • a specified treatment of internal risk transfers of equity risk and interest rate risk between the banking and trading books;
  • a new standardised approach that uses changes in the value of an instrument based on sensitivity to underlying risk factors; and
  • a simpler method for incorporating liquidity horizons into the internal models approach.

The consultation ends on 20 February 2015. (Source: Review of the Trading Book: Consultative Document on Remaining Issues)

Basel consults on Standardised Approach changes: The Basel Committee has published a  consultative document on Revisions to the Standardised Approach for credit risk. It wants to:

  • reduce reliance on external credit ratings;
  • enhance granularity and risk sensitivity;
  • update risk weight calibrations;
  • provide more comparability with the internal ratings-based approach with respect to the definition and treatment of similar exposures; and
  • give better clarity on the application of the standards.

It is considering replacing references to external ratings with a limited number of risk drivers. The key proposals include:

  • no longer risk-weighting bank exposures by reference to the bank's external credit rating or that of its sovereign of incorporation, but instead basing them on the bank's capital adequacy and its asset quality;
  • no longer risk-weighting corporate exposures by reference to the borrowing firm's external credit rating, but instead basing them on the firm's revenue and leverage;
  • changing the treatment and considerations for the retail category and real estate; and
  • changing the credit risk mitigation framework by reducing the number of approaches, recalibrating supervisory haircuts and updating the corporate guarantor eligibility criteria.

The Basel Committee seeks comments by 27 March 2015. (Source: Basel Consults on Standardised Approach Changes)

Basel consults on capital floors: The Basel Committee has published a consultative paper on the design of a capital floor framework based on standardised, non-internal modelled approaches. It asks for comments by 27 March 2015. Following this, it will consider the appropriate calibration for the floor. (Source: Basel Consults on Capital Floors)