The Basel Committee has reportedly dropped its plan for a new capital requirement for “credit spread risk” on loans, bonds and other assets held in the banking book. The Basel Committee defined credit spread risk as as any kind of asset spread risk of a credit-risky instrument that is not explained by either general interest rate risk in the banking book or the expected default risk.
ABA had objected to the proposal, expressing concerns about its complexity and suitability in numerous meetings with U.S. regulators and sending representatives to meet with the Basel Committee.
Although the credit spread risk capital requirement appears to have been dropped, the Basel Committee continues to develop a proposal for an interest rate risk capital requirement. That proposal is expected to be made public in the coming months. For more information, contact ABA’s Hugh Carney.