Last June the Basel Committee released the calendar for implementing adjustments to the Basel II market risk framework.
The adoption of revised capital charges for securitization positions held in the trading book was pushed back by 12 months. The committee has agreed to a coordinated start-date no later than December 31, 2011, which was initially expected in January 2011 with a transitory period of two years.
The amendments now also incorporate an additional compromise to "match the implementation timetable in other major jurisdictions," potentially allowing the Eureopean Union authorities to delay implementation further and avoid unfairly penalizing European banks in the event of U.S. regulators dragging their heels, Deutsche Bank analysts said.
The length of this implementation may come as a surprise to the market as throughout the crisis regulators have been keen to push action promptly and firmly, but Deutsche Bank analysts said the deferred timeline is positive: "With only minor adjustments to relieve the proposed increase capital requirements for securitization, the rules remain onerous."
The current risk framework based on stressed value-at-risk models will continue to be applied until then, although it has proved its limits in the crisis.
Among the minor changes for non-correlation trading securitization positions, the capital charge for total net long and net short positions will be based on the maximum capital charge of either the total net long or net short positions, Deutsche Bank analysts said.
After December 2013, the capital treatment will revert to how it was originally envisaged, where an aggregation of capital charges for net long and net short positions will occur if specific hedging is not in place.
"Previously, rules would have in certain cases required more capital to be held than was actually at risk," Deutsche Bank analysts said. "However, both these changes, along with the timeline deferral, while incrementally more positive, do not change the substance of the greater regulation faced by the securitization under CRD III."
