Basel Committee Issues Paper on Exposures for Trading-Related Activities
The Basel Committee on Banking Supervision has issued a paper for public comment outlining proposed capital requirements for banks’ exposures to certain trading-related activities. This includes a treatment for counterparty credit risk. The proposals also contain a solution for double default effects, or the risk that both a borrower and guarantor default on the same obligation. The paper, ‘The application of Basel II to trading activities and the treatment of double default effects’, represents a milestone in international capital standards-setting in that it was prepared jointly by the Basel Committee and the International Organization of Securities Commissions. It is available together with a summary of responses received on a survey of banks’ and investment firms’ trading books that provides background material.