BIS panel eyes credit rating-linked risk assessment rules.
The global watchdog on banks' capital adequacy rules has reached an agreement on new minimum capital rules calling for stiffening assessment of risks involved in lending to certain governments and firms assigned low credit ratings by private rating agencies.
The new capital adequacy rules will replace the 1988 global standard set by the Bank for International Settlements based in Basel, Switzerland, according to the Basel Committee on Banking Supervision.
The group of central bankers and banking regulators who make up the committee said in a statement released Tuesday it ''is pleased to announce that it has achieved consensus on the remaining issues regarding the proposals for a new international capital standard.''
The committee ''will publish the text of the new framework (agreement), widely known as Basel II, at the end of June 2004,'' said the BIS, the effective supervisory body for the world's central banks.
The current capital rules of 1988, known as Basel I, require banks operating internationally to have capital equal to 8 percent of outstanding loans and other risk-weighted assets.
Basel I set risk weights for various categories of assets, such as loans to governments and private firms, bonds and stocks without distinguishing between degrees of risks in investing in the same categories of assets.
Basel I assigned a uniform zero weight to loans to governments, while assigning a uniform 100 percent risk weight to loans to private firms.
The new rules, known as Basel II, call for assigning a zero weight to loans to highly rated governments, while giving a 150 percent weight to loans to low-rated governments and companies.
Basel II will be implemented in installations, starting in December 2006.
The BIS panel has drawn up the new rules basically to stiffen calculation methods for degrees of risks involved in banks' investing in certain types of assets, such as loans to low-rated firms.
For example, Basel II calls for assigning a 150 percent risk weight to firms with ratings of B or lower and to firms whose repayments on principal and interest are in arrears for 90 days or more.
The BIS panel has been calling for better aligning bank capital rules with actual risks which banks face in investing in certain types of assets or extending loans to certain classes of borrowers.
To this end, the panel proposed assigning risk weights of 0 percent, 20 percent, 50 percent, 100 percent and 150 percent in view of the degrees of risks in holding each category of asset.
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|Publication:||Japan Weekly Monitor|
|Date:||May 17, 2004|
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