A small town in Switzerland, part 2
The review of the changes to Basel 2 now moves to the credit risk rules. There isn't much that is new here either: some tweaking of the credit conversion factors for liqudity facilities, and a new, seemingly penal treatment of CDO squared positions (which the committee in keeping with its mission to call everything by a different name to everyone else, call resecuritisations). Here are the risk weights:
Two things spring to mind at once. The classifying criteria is rating. That's right - the ratings agencies, who did such a sterling job at rating ABS that they are facing multiple lawsuits and much approbrium, are still at the heart of regulatory capital. And given that, 20% is hardly penal for a AAA CDO squared tranche. Roll on re REMIC.
Two things spring to mind at once. The classifying criteria is rating. That's right - the ratings agencies, who did such a sterling job at rating ABS that they are facing multiple lawsuits and much approbrium, are still at the heart of regulatory capital. And given that, 20% is hardly penal for a AAA CDO squared tranche. Roll on re REMIC.Labels: Basel
posted by David Murphy at 09:33
1 Comments:
Very interesting blog,thanks for your insights.
I find the Basel Enhancements to the Market risk framework particularly penalizing and inappropriate.
Specifically the treatment of the securitisation positions in the trading book.
Net positions(defined under the very consevative rules of the Standardised approach) in the trading book would attract a similar riskweight to the ones in the BB.
I would have expected a more risk sensitive approach.
I don't even mention "Correlation trading" treatment in the paper which is horrendous.
Hopefully the IMM approach will be transposed into the CRD.
Post a Comment
<< Home