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Global regulators propose tighter credit risk rules for banks 

July 3, 2015

Huw Jones, Reuters

Global banking regulators have proposed a more comprehensive set of rules for banks to set aside capital to cover losses from their exposures to other lenders and limit fallout in a crisis.

During the financial crisis some banks suffered big losses on their derivatives contracts due to weaker creditworthiness at banks on the other side of their trades.

The value of derivatives had to be written down when it became obvious that counterparties may not meet their obligations.

Since then capital requirements to cover such "credit valuation adjustments" (CVA) have been beefed up but the Basel Committee of banking supervisors wants to extend them to "reduce the incentive banks currently have to leave some of their risks unhedged".

A wider set of risks would be factored into the CVA, such as daily changes in risks from markets, and not just changes in the creditworthiness of the counterparty itself.

Read more: Reuters

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