Basel Committee Reacts to U.S. Subprime Woes

Lora Bentley

The subprime mortgage crisis in the U.S. is prompting others besides the U.S. Treasury to gear up against future financial storms. An Associated Press story published in the International Herald Tribune reports that the Basel Committee on Banking Supervision has announced a new set of measures that it will introduce "on top of" Basel II requirements.


According to a committee statement:

The committee is introducing a number of measures to help ensure sufficient capital, to capture off-balance sheet exposures more effectively and to improve regulatory capital incentives.

There is no indication as yet exactly what those measures will be, but the committee's press release does explain where the changes will come into play. For instance, to improve banks' risk management practices, the committee plans to issue guidance on Basel II Pillar 2, which deals with supervisory review. The guidance will address management of off-sheet balance exposures, stress testing processes, capital planning and securitization, among other things.


In addition to introducing new measures, the committee also plans to rework parts of Basel II itself:

...including the capital treatment of complex structured credit products, liquidity facilities to support asset-backed commercial paper (ABCP) conduits, and credit exposures held in the trading book.

But never fear -- the committee is aware that introducing too much regulation too quickly is asking for trouble:

These measures will be introduced in a manner that promotes long-term bank resiliency and strong supervision, while seeking to avoid potentially adverse near-term impacts as the re-pricing of risk and deleveraging process continues in financial markets.

Hopefully, they mean what they say and it's more than just lip service


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