Banks unite in concerns over capital requirements directive
Wednesday 12 May 2010 - by Luke Nelson
The capital requirement proposals published by the Basel Committee on Banking Supervision in December have resulted in a global response from banks. Luke Nelson analyses both the shared and divergent opinions in the responses
Banks are generally receptive to the overall efforts being taken to strengthen the capital requirements framework but many do express dissatisfaction with specific elements of the Basel proposals.
BNY Mellon suggests the use of the US approach of limiting the recognition of DTAs within Tier 1 capital to those that can be realised within a year. Standard Chartered suggests that DTAs should be recognised in accordance with prevailing accounting rules but should be subject to a regulatory assessment of recoverability.
It is not just Anglo-American banks that report dissatisfaction with the treatment of DTAs. The China Banking Regulation Commission argues that the Basel Committee on Banking Supervision should grant national supervisors a certain degree of discretion when dealing with DTAs, such is the complexity in their formation.
Santander, meanwhile, advocates a three-layer approach to DTAs which suggests that DTAs not associated with losses reported in previous year, a realisation period less than 10 years, or related to expected losses provisions, should not be deducted. Deutsche Bank goes as far as to argue that full DTA deduction would actually increase procyclicality in the financial sector.
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