Commission launched consultation on possible measures to strengthen bank capital requirements for counterparty credit risk
09 February 2011
The purpose of this consultation is to strengthen the capital requirements for counterparty credit exposures arising from credit institutions’ and investment firms' derivatives, repo and securities financing activities.
Specifically, their objective is to raise the amount of capital backing these exposures, reduce procyclicality and provide additional incentives to move OTC derivative contracts to central counterparties (by requiring more capital for OTC derivatives not cleared by a CCP than for those cleared by a CCP), thus helping reduce systemic risk across the financial system. The proposed measures would also provide further incentives to strengthen the risk management of counterparty credit exposures.
The review of the treatment of counterparty credit risk in the CRD forms an integral part of the Commission’s efforts to ensure efficient, safe and sound derivatives markets. It complements other Commission’s regulatory initiatives in this area, in particular the
Regulation on OTC derivatives, central counterparties and trade repositories ("the Regulation"), adopted by the European Commission on 15 September 2010.
The purpose of this consultation is to gather stakeholders' views on two specific issues in the area of counterparty credit risk, on which:
- Capitalisation of bank exposures to central counterparties (Section I) and
- Treatment of incurred credit valuation adjustments (Section II)
The Commission services consider it necessary to launch an additional consultation on these two issues due to the fact that the Commission’s February 2010 Consultative document did not set out the necessary level of detail on the above two issues.
With respect to the first issue, the possible measures contained in this Consultative document broadly follow the preliminary proposals set out in a consultative document published by the Basel Committee on 20 December 201011. The Basel Committee is currently preparing an impact assessment on its proposals. The Commission services will take due account of the outcome of its own consultation, the outcome of the Basel consultation and the Basel Committee's impact assessment results as well as any other progress made in discussions on the international stage when finalising the respective legislative proposal.
Deadline for comments is 3 March 2011.
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