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Before banks start the implementation of the new Basel II rules “we strongly recommend that banks conduct a sober and frank self-appraisal” of their current risk management procedures, Fed Governor Randall Kroszner said.
There will be higher capital requirements for certain complex structured credit products which have been the source of many losses during the recent market disturbances, Kroszner said. “There are also plans to strengthen the capital treatment of liquidity facilities extended by banks to support off-balance sheet vehicles such as asset-backed commercial paper conduits.”
Kroszner outlined the Committee plans to strengthen the capital requirements in the trading book. It also plans to issue Pillar 2 guidance including on the risk assessment from off-balance sheet exposures and securitizations, reputational risk and stress testing.
“Going forward, the Committee will monitor Basel II minimum requirements and capital buffers to evaluate their appropriateness”, he said. “It will also assess banks' internal capital management processes and associated risk management practices.”
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