NERA Trading and Capital Markets Regulatory Update
20 November 2009
By Christopher Laursen
In this paper, NERA Vice President Christopher Laursen examines the latest regulatory updates from the Basel Committee on Banking Supervision, which provides a forum for regular cooperation on banking supervisory matters. After years of design, discussion with the industry, and refinements, in early 2009 the Basel II trading book suddenly proposed higher capital requirements, Mr. Laursen notes. Significant proposed increases resulted from a ratcheting-up of specific risk charges for securitization positions and the addition of a new "stressed" Value at Risk requirement. These changes represented efforts by the Basel Committee to bolster capital for certain complex "price risks" that they perceived to have been under-charged, particularly in the context of a systemic financial crisis. According to Mr. Laursen, the early 2009 proposals, whose capital impacts had only been minimally analyzed at the time of release, were also part of a zealous overall shift in Basel capital ideology.
