Alert November 22, 2011

Basel Committee Issues Revised Rules on Central Counterparty Exposures and FAQs on Counterparty Credit Risk

The Basel Committee on Banking Supervision (the “BCSB”) issued revised draft rules (the “Revised Rules”) under its Basel III framework setting out new capital reserve requirements for banks’ exposures to central counterparties (“CCPs”).  The Revised Rules incorporate a number of technical changes made principally at the request of the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions.  These changes relate to the scope of the Revised Rules, the capitalization of trade exposures, the capitalization of default fund exposures, and indirect access-related issues.  The Revised Rules do not change the risk weight for trade exposures ‑  trade exposures to a qualifying CCP will be subject to a 2 percent risk weight under the new Basel III rules.  The BCSB will accept comments on the revised proposal through November 25, after which a final proposal will be issued by the end of the year.  The final rules should be implemented by January 2013.

The BCSB also issued a set of frequently asked questions that relate to the counterparty credit risk sections of the Basel III rules.  These frequently asked questions provide technical and interpretive guidance regarding the default counterparty credit risk charge, the credit valuation adjustment risk capital charge and asset value correlations.