Capital requirements for banks' equity investments in funds revised by the Basel Committee

The Basel Committee on Banking Supervision today published a set of proposals that would revise the prudential treatment of banks' equity investments in funds.

In reviewing the existing standard for banks' equity investments in funds, the Committee's objective was to develop an appropriately risk sensitive and consistently applied risk-based capital regime. The existing standard would benefit from further clarity in some areas. In addition, it does not require banks to reflect a fund's leverage when determining capital requirements associated with their investments in a fund, even though leverage is an important risk driver. The Committee believes the revised standard will more appropriately reflect the risk of a fund's underlying investments and its leverage.

The revised standard will also help address risks associated with banks' interactions with shadow banking entities. The work of the Basel Committee therefore contributes to the broader effort by the Financial Stability Board to strengthen the oversight and regulation of shadow banking.

The Committee welcomes comments on this consultative document. Comments on the proposals should be submitted by Friday 4 October 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 respondent explicitly requests confidential treatment.