search   Knowledge Bank printable version
 Knowledge Bank
 Deal Information
 Industry Events
 Advocacy Forums
 Site Utilities
 Free Offers

Click here to
Update Registration

Please be advised that the use of ®
is subject to the
Terms & Conditions

of use and the
Privacy Policy


Best viewed in

Knowledge Bank > Financial > Banking & Bonds/ Credit & Default Risk
Select an area

FREE Three-week trial of Asset-Backed Alert's newsletter

Basel II Due, With Maddeningly Few Changes
Asset Backed Alert, Harrison Scott Publications Inc. (May 14, 2004)

The Bank for International Settlements doesn't seem to be giving much heed to market participants' cries for changes to its upcoming New Basel Capital Accord.

The Basel, Switzerland, organization is due to publish a draft of the long-awaited proposal by the end of next month. It hinted early this week that the document's securitization provisions won't differ much from earlier rough drafts. The guidelines would change the way banks around the world calculate how much cash to reserve against the structured products they buy and sell - even though market players have repeatedly complained that the resulting capital charges would be far too steep.

And the BIS' refusal to budge has securitization professionals annoyed. "It does not appear they're addressing the industry's main concerns," said Mark Nicolaides, a partner in the London office of law firm Mayer Brown. "It's very disappointing."

Industry players keeping up with "Basel II" are frustrated that they still have a fight on their hands, even as bankers in other areas of the capital markets have managed to wring various concessions from international regulators over the last few months.

Reacting to the Enron scandal and other blowups, the BIS wants to guard against bank failures by replacing the standard capital charges for asset- and mortgage-backed deals with flexible formulas that it claims more-accurately reflect the risk of losses among those transactions.

That would actually reduce the charges tied to top-quality issues, but critics complain the threshold would still be too high. They also worry that low-rated securitizations would incur significantly higher charges than unsecured corporate bonds with similar ratings. "That just doesn't make any sense," one source said.

The BIS has released a description of certain solutions to problems that banks, in general, have raised during five years of talks with its Committee on Banking Supervision. Securitization was barely mentioned in that 11-page report this week, prompting asset-backed players to fear the worst.

As the proposed guidelines stand now, they could ultimately drive up borrowing costs for companies and individuals, since banks would have less power to fund new credits and shed risk associated with their investments. The chief target for complaints is that banks would have to hold cash equivalent to at least 0.56% of their issues and investments, even if new risk weightings determine the reserves should be lower. Industry participants also want to ease the proposed capital charges for lower-rated securitizations, unrated deals, synthetic transactions and liquidity facilities for commercial-paper conduits.

"If these issues aren't solved, it won't kill securitization. But it will certainly slow the growth of it," Mayer Brown's Nicolaides said.

It's still possible that the BIS will surprise everyone by addressing securitization players' criticisms in its upcoming draft. But market players feel that's unlikely, because the committee would have let them know by now.

In fact, the usually responsive committee has "gone radio silent over the last couple months," Nicolaides said. The group appears to be concentrating on simply drafting the proposal and getting it out, with an eye toward making changes later.



© Copyright 2014. The Mayer Brown Practices. All rights reserved.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

Legal Notices | Attorney Advertising | Site Index | Contact Webmaster

*The site links listed on this web site are for reference use only.
The firm does not necessarily sponsor, endorse or verify the accuracy of the content contained in any of these sites.