New mar­ket risk code won’t trig­ger big bank cap­i­tal hikes: Basel

Daily Mirror (Sri Lanka) - - FOREIGN -

Most banks will not have to hike cap­i­tal sig­nif­i­cantly to meet stricter rules to counter trad­ing risks, a sur­vey showed yes­ter­day, af­ter Asian na­tions sought to de­lay in­tro­duc­ing the code cit­ing con­cerns about the need for more funds.

The code, known as the “fun­da­men­tal re­view of the trad­ing book” or FRTB, was drawn up by the Basel Com­mit­tee on Bank­ing Su­per­vi­sion and tight­ens “mar­ket risk” cap­i­tal re­quire­ments.

The new rules, which are due to come into force in 2019, aim to re­duce dif­fer­ences in how much cap­i­tal banks set aside to cover risks from hold­ing stocks, bonds and de­riv­a­tives.

Banks say the rules will re­quire them to sharply in­crease their cap­i­tal, mak­ing them less will­ing to make mar­kets as long as they have not raised the ex­tra cash. Re­spond­ing to con­cerns, some Basel mem­ber states agreed to de­lay in­tro­duc­ing the code. Basel is­sued an update yes­ter­day out­lin­ing the im­pact of the re­vised rules on 89 large banks in 20 coun­tries.

It said the cap­i­tal needed to cover trad­ing risks would rise by 52 per­cent for big banks and dou­ble that for smaller ones. But, given trad­ing was a small por­tion of bank­ing ac­tiv­i­ties, over­all cap­i­tal would only need to rise by 2 per­cent, it said.

“Gen­er­ally, banks with less ma­te­rial trad­ing book po­si­tions have in some in­stances re­ported sig­nif­i­cant in­creases in mar­ket risk cap­i­tal (MRC) re­quire­ments, but the rel­a­tive im­pact of those changes on over­all MRC may be rel­a­tively small,” it said.

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