Banks fear capital swings if Basel III kills bond filter
Bank capital numbers will be exposed to swings in the value of huge bond portfolios if a Basel III footnote appears in final US and European rules – and with interest rates still at record lows, the initial swing can only go one way. Lukas Becker reports
Banks have had more than two years to peruse the Basel III prudential rules since they were finalised in December 2010, but the impact of one footnote – which transfers the volatility of huge, previously exempt bond portfolios into bank capital numbers – is only now beginning to sink in.
Paragraph 52 of Basel III lists what banks must include in common equity Tier I. This number, when divided by risk-weighted assets, produces the all-important common equity Tier I ratio, which is subject to a
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