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Nout Wellink |
The Basel Committee on Banking Supervision, in its October meeting, believes that the implementation of the Basel II capital framework would have gone some distance to alleviate the current global credit crunch which has resulted from the sub-prime lending crisis.
Nout Wellink, the chairman of the Basel Committee on Banking Supervision observed that the accord is designed to combat liquidity risk and would have improved the robustness of valuation practices and market transparency for complex and less liquid products. Committee members agreed that Basel II implementation would help make the capital base more relevant to banks'
changing risk profiles, and would also serve to create incentives for better risk measurement and management, including for securitisation exposures and liquidity lines for asset-backed commercial paper programmes. The Committee also has been working to introduce new standards for banks to hold capital against the default risk associated with complex, less liquid credit products in the trading book. It agreed to seek public consultation on the proposed standards and to assess their impact on banks' capital requirements.
Additionally, the committee emphasized the key role of the supervisory review process. Earlier this year, it initiated a review of jurisdictions' approaches to supervising and regulating funding liquidity risk. This work will take account of lessons learned from recent market events, including how liquidity risk is assessed by banks and supervisors under the assumption of stressed market conditions and the risks related to off-balance sheet exposures, it said. It has also launched an initiative to assess the reliability and auditability of fair value estimates, including the assessment of market liquidity in valuation methodologies.
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