Capital treatment of bank exposures to central counterparties

The Basel Committee on Banking Supervision, in cooperation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), is seeking views on potential changes to the capital treatment of banks' exposure to central counterparties (CCPs). The Basel Committee published an interim standard in July 2012 and noted at that time that additional work was needed to improve the capital framework. Introduction of the interim standard represented an important step towards ensuring appropriate measurement, monitoring and management of banks' exposures to CCPs, exposures which had previously attracted no regulatory capital charge.

The proposed changes to the interim standard seek to establish a capital treatment that ensures banks' exposures to central counterparties are adequately capitalised, while also preserving incentives for central clearing. They promote robust risk management by banks and CCPs, including by encouraging CCPs to satisfy the CPSS-IOSCO Principles for financial market infrastructures (PFMIs). The proposed changes respond to evidence that application of the interim rules could lead both to instances of very little capital being held against exposures to some CCPs, and potentially in certain cases, to capital charges that are higher than for bilateral (non-centrally-cleared) transactions. There was also concern that, in some cases, the interim capital treatment might not create the appropriate incentives for maintaining generous default funds. These outcomes are potentially inconsistent with the Committee's objectives and the changes set out in the consultative paper seek to address those concerns.

In parallel to this consultation, the Committee will also conduct a quantitative impact study. Any amendments to the proposed standard will be based on feedback on this consultative document, evidence from the quantitative impact study that will be conducted alongside this consultation, and further consultation with CPSS and IOSCO. The Committee is not proposing any change to the capital treatment of exposures to non-qualifying CCPs. Nor does this consultative paper consider any changes to the rules on capital treatment of clearing member exposures to clients.

The Basel Committee welcomes comments on this consultative document. Comments on the proposals should be submitted by Friday 27 September 2013 by e-mail to: baselcommittee@bis.org. Alternatively, comments may be sent by post to: Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a comment contributor explicitly requests confidential treatment.