Banks' Use of CDS to Lower Capital Targeted by Basel Regulators
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Global regulators are planning to crack down on banks that underestimate their capital requirements because of the way they use credit-default swaps and other instruments to lower the amount of risk on their books.
The Basel Committee on Banking Supervision said today that it would seek to stop banks from lowering capital charges by buying instruments such as CDS to insure themselves against losses, while failing to recognize the large liabilities they incur from what they pay for this protection, the group said in a statement on its website.