Basel and Dodd-Frank create arbitrage potential, say analysts
Removal of credit ratings under Dodd-Frank will create arbitrage opportunities – and is already being exploited by some US banks, research claims
A requirement in the Dodd-Frank Act to remove all references to credit ratings from the US regulatory framework could lead to regulatory arbitrage, and is already being exploited by banks, claim analysts at JP Morgan Cazenove.
In a note published on July 1, the analysts predict the requirement to remove credit ratings will delay the implementation of new Basel trading book rules in the US – dubbed Basel 2.5. With the rules due to be implemented in Europe from December 31, they are concerned
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