Basel III Capital Framework: Basel Committee Publishes Consultative Document Proposing Changes to the Capital Treatment of Purchased Credit Protection

Sullivan & Cromwell LLP - May 14, 2013

The Basel Committee on Banking Supervision (the “Basel Committee”) recently published a consultative document (the “Proposal”) which seeks to amend Basel II’s treatment of credit protection purchased. In particular, the Basel Committee is proposing to require banking organizations to calculate the present value of material credit protection costs in an “appropriately conservative manner” if such costs have not been recognized in earnings or otherwise recognized in Common Equity Tier 1, and to treat the present value of such costs as a separate exposure and assign it a 1250 percent risk weight.

Comments on the Proposal are due by June 21, 2013.