Associations Comment on Application of Basel II to Trading Activities

03 June 2005

Numerous Associations jointly submitted a detailed commentary on the three strands of the consultative document issued jointly by the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions (IOSCO) on the application of Basel II to trading activities and the treatment of double default effects.

Addressing the three strands of the consultative document, the Associations noted that the high degree of engagement with industry has been most pronounced on Strand 1 (counterparty credit risk), and to a lesser extent, Strand 2 (double default risk) of the review. However, the Associations remain very concerned with Strand 3 (trading book issues and unsettled transactions) and feel it has yet to benefit from sufficient discussion between industry representatives and the Basel/IOSCO Working Group.

The proposed changes in this area are substantial, and the formal consultation phase will therefore provide critical feedback. The Associations remain hopeful that further dialogue will produce much needed changes to this part of the overall package.

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