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Application of own credit risk adjustments to derivatives - Basel Committee consultative document
December 21, 2011--The Basel Committee today issued a consultative document on the application of own credit risk adjustments to derivatives.
The Basel III rules seek to ensure that a deterioration in a bank's own creditworthiness does not at the same time lead to an increase in its common equity as a result of a reduction in the value of the bank's liabilities. Paragraph 75 of the Basel III rules requires a bank to "[d]erecognise in the calculation of Common Equity Tier 1, all unrealised gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk".
The application of paragraph 75 to fair valued derivatives is not straightforward since their valuations depend on a range of factors other than the bank's own creditworthiness. The consultative paper proposes that debit valuation adjustments (DVAs) for over-the-counter derivatives and securities financing transactions should be fully deducted in the calculation of Common Equity Tier 1. It briefly reviews other options for applying the underlying concept of paragraph 75 to these products and the reasons these alternatives were not supported by the Basel Committee.
view the Application of own credit risk adjustments to derivatives - consultative document
Source: BIS
Eurozone target in danger as UK declines
December 20, 2011--Euro zone ministers agreed on Monday to boost IMF resources by €150bn to ward off the debt crisis and won support for more money from EU allies, but it was unclear if the bloc would reach its €200bn target after Britain bowed out.
Following a three-hour conference call, European Union finance ministers said currency zone outsiders the Czech Republic, Denmark, Poland and Sweden would also grant loans to the International Monetary Fund to help save the 17-nation zone.
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Source: FIN24
New listing on LSE for Gold P-ETC GBp On London Stock Exchange
December 19, 2011--Source, one of the fastest growing Exchange Traded Product (ETP) providers in Europe with US$8 BN in assets, is pleased to announce that its Source Physical Gold P-ETC is now listed in GBp on the London Stock Exchange (LSE).
This listing complements the existing listing in USD on the LSE, and provides sterling-denominated investors with easy access to one of the fastest growing gold products in Europe. The company also plans to list the product in EUR on Xetra early 2012.
Year to date, the Source Physical Gold P-ETC has raised over US$1 billion in assets and traded over US$4 billion on the LSE. As demand for precious metals has soared, investors have adopted physically-secured ETPs as their vehicle of choice. With over US$2.2 billion in assets, the Source Physical Gold P-ETC is now the 6th largest physical gold product globally, and is one of the most cost-efficient and liquid products in the market.
Commenting on the new listing, Source CEO Ted Hood said, “Investors look to precious metals as both an investment opportunity and a safe haven. The concept of a physical holding is part of their appeal. It is important that the investment vehicle does not compromise this.”
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Source: Source
Consultative paper on "Principles for the supervision of financial conglomerates" released by the Joint Forum
December 19, 2011--The Joint Forum released today a consultative paper on Principles for the Supervision of Financial Conglomerates.
The proposed principles, which revise the Joint Forum's 1999 principles, provide national authorities, standard setters and supervisors with a set of internationally agreed principles that support consistent and effective supervision of financial conglomerates and in particular those financial conglomerates that are active across borders.
view the Principles for the supervision of financial conglomerates - consultative document
Source: AME Info
Proposed regulatory capital disclosure requirements issued by the Basel Committee
December 19, 2011--The Basel Committee on Banking Supervision today published for consultation a set of requirements for banks to disclose the composition of their regulatory capital. These aim to improve the transparency and comparability of banks' capital bases, including on a cross border basis.
During the financial crisis, market participants and supervisors attempted to undertake detailed assessments of the capital positions of banks and make cross jurisdictional comparisons. These efforts were often hampered by insufficiently detailed disclosure and a lack of consistency in reporting between banks and across jurisdictions. A lack of clarity on the quality of capital may have contributed to uncertainty during the financial crisis.
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Source: BIS
Fitch revises outlook on France to 'negative'
December 18, 2011--A negative outlook usually means a downgrade is possible in 12-18 months.
Fitch said the change in outlook was prompted by the heightened risk of government liabilities arising from the eurozone's debt crisis.
The agency also said it was considering downgrading ratings for Belgium, Spain, Slovenia, Italy, Ireland and Cyprus.
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Source: BBC
ECB publishes consolidated banking data for 2011
December 16, 2011--Today the European Central Bank (ECB) is publishing the June-2011 Consolidated Banking Data (CBD), a data set that provides various statistics about the EU banking system on consolidated basis. It includes statistics on both individual EU Member States and the EU as a whole.
It refers to 4,700 credit institutions and 434 banking groups and covers data for 1,016 foreign-controlled branches and subsidiaries operating in the EU. In particular, the data set includes profitability and efficiency indicators, balance sheet indicators relating to banks’ funding sources, non-performing loans developments as well as solvency ratios.
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Source: ECB
Deutsche Bank Fund Unit May Be Worth EU2 Billion, Analysts Say
December 16, 2011--Deutsche Bank AG's non-core asset management businesses may be worth 1 billion euros ($1.3 billion) to 2 billion euros in a sale, Morgan Stanley analysts said in a note to investors today.
A sale would make “strategic sense” and boost capital levels by 10 to 40 basis points, analysts Hubert Lam and Huw Van Steenis said. Still, Deutsche Bank's new co-chief executive officers “may wish to accelerate to a higher capital level through stronger de-leveraging, asset sales, or capital raise,” the Morgan Stanley analysts said.
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Source: Bloomberg BusinessWeek
High cost credit protection: statement issued by the Basel Committee
December 16, 2011--Recent transactions have raised concerns among supervisors about potential regulatory capital arbitrage related to some credit protection transactions. Given the supervisory concerns related to such transactions, this statement is intended to alert banks that supervisors will closely scrutinise such transactions in both the specific context of the evaluation of credit risk transfer within the securitisation framework, as well as within the broader context of the Basel Pillar 2 supervisory review process and assessment of capital adequacy.
Background
The Basel capital framework recognises that credit risk mitigation techniques can significantly reduce credit risk and can serve as an effective risk management tool. In particular, paragraph 140 of the framework establishes that where guarantees or credit derivatives are direct, explicit, irrevocable and unconditional, and supervisors are satisfied that banks fulfil certain minimum operational conditions relating to risk management processes, banks may take account of such credit protection in calculating capital requirements.
Nevertheless, the Committee notes that there exists potential for capital arbitrage within the credit risk mitigation framework, including the use of credit risk mitigation for securitisation exposures, particularly when (i) there is a delay in recognising losses and the costs of protection in earnings while (ii) the bank receives an immediate regulatory capital benefit in the form of a lower risk weight on an exposure on which it is nominally transferring risk. In some instances, the premiums or fees and other direct or indirect costs paid for certain credit protection, combined with other terms and conditions, call into question the degree of credit risk mitigation or credit risk transfer of the transaction. Rather than contributing to a prudent risk management strategy, the primary effect of these high-cost credit protection transactions may be to structure the premiums and fees so to receive favourable risk-based capital treatment in the short term and defer recognition of losses over an extended period, without meaningful risk mitigation or transfer of risk.
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Source: BIS
Basel III FAQs answered by the Basel Committee
December 16, 2011--The Basel Committee on Banking Supervision today published answers to a third set of Basel III frequently asked questions. These aim to promote consistent global implementation of Basel III, through providing technical elaboration of the rules text and interpretative guidance.
The Basel Committee has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability. Today's publication updates the second set of FAQs that relate to the definition of capital, which was published in October 2011.
view the Full publication-Basel III definition of capital - FAQs (update of FAQs published in October 2011)
Source: BIS
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