Basel Committee downplays impact of banking reform package

According to the results of its interim analysis of the impact of its fundamental 'trading book' review, its proposed changes would increase overall minimum capital requirements under the Basel III regulatory regime by only 4.7%. Removing the bank with the largest value of market risk-weighted assets from the sample would reduce this still further, to only 2.3%, it said.

The analysis relates to proposals by the Basel Committee to change the way in which banks would have to categorise certain risks as part of their trading operations, which would have a knock-on impact on the amount of capital affected banks would have to hold against those risks.

The committee examined the potential impact of its proposals on 44 unnamed banks as part of the exercise. It used data from 31 December 2014 to "provide a better understanding of the capital impact and/or implementation dynamics", according to its report.

The Basel Committee brings together regulators from around 30 countries to coordinate rules for their banks. Its members include the Bank of England, US Federal Reserve, European Central Bank and the China Banking Regulatory Commission. The Basel III international banking agreement will introduce new baseline requirements for capital, leverage and liquidity for global banks from 2019, requiring them to increase both the quantity and quality of capital they hold while accounting for higher levels of risk-weighted assets.

The committee is currently carrying out a Fundamental Review of the Trading Book to tackle concerns that the capital requirements did not accurately reflect the market risks of assets on banks' trading books. Trading books contain those assets that banks plan to actively trade, as opposed to 'banking book' assets which are generally held to maturity.

According to the committee's analysis, the proposals would increase individual banks' market risk capital requirements on a weighted average basis by 74% compared to the current rules. However, it said that this figure was also skewed by a number of banks with particularly large trading books in the sample. Capital requirements for the median bank in the same sample would increase by 18%, it said.

The committee has made further revisions to the market risk rules since conducting its analysis, it said. It expects to finalise the standard by the end of the year.