The IACPM has joined the Institute of International Finance (IIF) and Global Financial Markets Association (GFMA) to comment on the proposals set out in the consultative document “Revisions to the Standardized Approach for Credit Risk” published by the Basel Committee on Banking Supervision on December 22, 2014 (BCBS d307). The joint association letter addresses various topics proposed by the Basel Committee such as the use of external ratings, capital floors and sector risk drivers. This letter also provides specific recommendations/suggestions for these issues raised by the Basel Committee.
In addition, the IACPM has also submitted a separate response letter on Credit Risk Mitigation (Section 3.4 of the Revisions to Standardized Approach for credit risk). This letter provides arguments in favor of US No Restructuring (NoR) CDS contracts as an effective credit risk mitigation hedge. Based on this argument, banks should receive 100% regulatory capital relief for NoR CDS contracts as opposed to no capital relief suggested by the Basel document.