Regulators Seek Tougher Trading Book Rules in Third Basel Wave

Global banking regulators will propose an overhaul of capital rules for assets on banks’ trading books and to reinforce safeguards against excessive risk taking as part of a third wave of rule changes in response to the 2008 financial crisis.

The Basel Committee on Banking Supervision will also review capital rules for securitized debt, and seek to reduce banks reliance on assessments issued by credit-ratings companies, Wayne Byres, the group’s secretary general, said in a speech today in the Swiss city.

“There is more to be done,” Byres said, according to an e-mailed copy of his prepared remarks. “We have not yet completed the full set of policy reforms.”

Nations are struggling to meet a Jan. 1, 2013, deadline for implementing an overhaul of bank capital rules that was agreed on by the Basel committee. The measures, known as Basel III, would more than triple the core reserves that lenders have to hold against losses compared to current international rules. They are scheduled to apply fully from 2019.

Only eight of the Basel committee’s 27 member nations have so far issued their final rules for applying Basel III, the Financial Stability Board said yesterday.

“Implementing Basel III is essential, but it must be accompanied by other measures and reforms so that a truly healthy banking system is secured for the future,” Byres said.

Large Exposure

The Basel group will seek views on updating so-called large exposure rules that cap the amount of business a bank can do with any single counterparty, Byres said.

It will also issue “detailed proposals, and undertake an impact study” on the capital rules that apply to lenders’ trading books, he said.

The measures follow both the publication of Basel III and an earlier set of rule-changes, known as Basel 2.5, that was agreed on in 2009.

Byres said that the Basel committee is working to finalize a draft liquidity rule for lenders that would force them to hoard enough easy-to-sell assets to survive a 30-day credit squeeze.

The group is seeking to announce the final form of the standard in “the first part of 2013,” Byres said.