CP3 released

The Basel Committee on Banking Supervision released its third consultative paper (CP3) this morning, by posting the paper on its website.

The long-awaited document – CP2 was released at the beginning of 2001 – contains revisions to the Basel Accord made as a result of the third quantitative impact study (QIS3), which was issued in October and completed in December. However, the committee has chosen to release the results of QIS3 on May 5, nearly a week after posting CP3. Originally, QIS3 was slated to be released in late February or early March, and then Basel officials indicated that the survey results would be released alongside CP3. According to the documents released today, more than 350 banks from 40 countries participated in QIS3.

The Basel Committee outlined the changes it considered significant to pillar 1 (the section that deals with specific capital charges) in an introduction to the document. There are changes made to the recognition of provisions, qualifying revolving retail exposures, residential mortgages, specialised lending, high volatility commercial real estate, credit derivatives, securitisation and operational risk.

The Basel Committee appears to have included substantial changes to the securitisation portion of the Accord – there was some doubt as to whether those changes would make it into CP3. The changes to the securitisation are a result of both the QIS3 results and responses to a second working paper on securitisation, released in October 2002.

Generally speaking, the committee reaffirms the need for banks to deduct from capital positions that are highly subordinated, but changes have been made to the securitisation framework concerning the treatment of liquidity facilities.

BaselAlert.com’s coverage of CP3 will be ongoing over the next few days, and will include feedback from the industry, regulators and technology experts.

Comments on the paper for the Basel Committee are due in on July 31. The paper is posted at: www.bis.org/bcbs/bcbscp3.htm.BaselAlert.com