Filter furore: EU countries set to shield banks from bond volatility

It was the toughest part of Basel III for the US to swallow – a requirement that unrealised gains and losses on some bonds would hit bank capital calculations. In Europe, legislators provided an opt-out – and some countries have already chosen to use it, in breach of the Basel text. Lukas Becker reports

During 2012, Allied Irish Banks (AIB) saw €553 million wiped from the value of government bonds it was holding – a loss equivalent to just more than 5% of its Tier I capital. Happily for the bank, it did not have to take the hit because the bonds were held in its available-for-sale (AFS) portfolio, and Basel II filters AFS volatility out of regulatory capital numbers. Even more happily, while this filter is removed in Basel III, the Central Bank of Ireland (CBI) plans to ignore that for the next