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The Basel 3 Rules – Part II | Creating a Common Liquidity Buffer

After the introduction earlier, you probably need more discussion on Counterparty Credit Risk. The banking Counterparty credit risk ( loans from other banks, Deutsche Bank being a notable example in the markets last week, jettisoning its trades where it borrowed heavily in the inter bank market) is to be risk weighted by new calculations superimposed on the banks internal rating models as per pillar 2 and pillar 3 requirements from Basel II.

The proposed regulation will likely get the thumbs up at the November 2010 conference of G-20 nation and calendarised adoption is slated for 2012. It is unlikely that the Basel 3 provisions will percolate down to smaller banks and money market participants subjected to Basel II equivalent European and FSA standards in Europe  (by virtue of their being in anon existent exempted list)

The regulations provide for MTM provisioning of all CCR assets. Risk weighting on CCR assets will be based on their being already marked to market and being dealt with a central counterparty. The additional risk weighting will be a 1-3%. The stable liquidity fund will be based on holdings of sovereign assets and “high quality corporate exposure”

The Basel 3 provisions also create a net stable funding ratio that defines the limit below which banks will be subjected to funds from a common pool at differential rates created from a buffer ratio across all banks as the stability fund above.

One comment on “The Basel 3 Rules – Part II | Creating a Common Liquidity Buffer

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This entry was posted on July 31, 2010 by in Banking, Bonds, Financial Markets, Financial Services, Investments, US.


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