In a bid for greater consistency in how banks account for trading exposures, global banking regulators are proposing a series of changes to the capital rules.
The Basel Committee on Banking Supervision Friday issued a consultation paper that outlines a series of proposed revisions to trading exposures under the capital adequacy framework, known as Basel III. The regulators say that their goal is to improve trading book capital requirements, and to promote consistent implementation of the rules so that they produce comparable levels of capital across jurisdictions.
Regulators' reviews of this aspect of the capital rules has found significant variation in how banks' trading exposures are captured in their capital calculations.
Among other things, the revisions proposed today include specifying how banks must treat internal transfers of equity and interest rate risk between the banking book and the trading book in an effort to reduce incentives for capital arbitrage within banks. They also include revisions to allow for a more granular treatment of market risk factors. And, they propose a simpler method for incorporating liquidity horizons, which is designed to reduce complexity.
Comments on the proposed changes are due by Feb. 20, 2015.