Alert January 03, 2012

Basel Committee Clarifies Rules Regarding the Deduction of Derivatives Losses

The Basel Committee on Banking Supervision (the “BCBS”) has issued a proposed clarification of the Basel III capital rules with respect to adjustments in the calculation of a bank’s regulatory capital due to unrealized gains and losses resulting from changes in the fair value of derivatives.  The proposed clarification provides that debit valuation adjustments for over-the-counter derivatives and securities financing transactions should be fully deducted in the calculation of Common Equity Tier 1 capital.  Comments on the proposed clarification must be submitted to the BCBS by February 17, 2012.