BASEL, Switzerland—The Basel Committee on Banking Supervision has finalized amendments to the Basel III market risk framework which introduce a simplified approach that World Council of Credit Unions said it supports.
The changes will help limit regulatory burdens on credit unions and other community-based depository institutions.
According to WOCCU, Basel III’s approach to market risk sets many banks’ and credit unions’ reserve requirements for available-for-sale securities and derivatives positions under risk-based capital rules. “The simplified approach to market risk will help limit regulatory burdens by retaining the existing Basel II standardized approach to market risk with the addition of a ‘scaling factor’ add-on that the Committee reduced from its original proposal at World Council’s urging,” said WOCCU.
The World Council had earlier argued the Basel Committee should retain the Basel II approach to market risk with limited modifications in comments made in June 2018. Credit unions and banks will be able to utilize the simplified approach unless the institution is one of the world’s 29 largest banks, uses internal models or trades in some types of options.
The final version of the standard retains the Basel II approach to market risk with a 30% add-on for interest rate derivatives, which is significantly less than the 50% to 100% add-on originally proposed by the Committee, WOCCU noted.
‘Proportional Regulatory Approach’
“We are very pleased that the Basel Committee has finalized a proportional regulatory approach to market risk reserves that will help limit compliance burdens on credit unions and other community-based depository institutions,” said Michael Edwards, WOCCU’s EVP and general counsel. “We also strongly support the Committee’s decision to significantly reduce the amount of additional reserves community-based institutions will be required to hold against interest rate swaps and caps under the simplified approach, compared to its proposal.”
The revised standard will take effect Jan. 1, 2022, and may be viewed here.