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How Basel III Might Blow Up CMBS 

November 9, 2015

Erika Morphy, GlobeSt.com

The Basel Committee on Banking Supervision is expected to publish a rule change for banks' fixed income trading books (FRTB) that could hurt -- quite significantly in the worse case scenario -- the CMBS market, according to a client note published by JP Morgan Chase.

This rule has been under consideration for a number of years in the Basel III deliberations and the industry had been expecting an increase in capital. A year ago, for example, word on the street was that when it is all said and done, Basel III's capital retention for commercial real estate loans will be as much as 25%. 

However, in recent months Basel has been adding harsher and harsher requirements, which, to be fair, is the general trajectory right now for new standards in the global capital markets.

That said, observers were taken aback by the magnitude of the harshness revealed by the JPMorgan client note.

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