Ingves touts simplicity of final Basel CCP rules

Final rules on banks' exposures to central counterparties (CCPs), published yesterday by the Basel Committee on Banking Supervision, are a victory for simple rules in the face of complexity, according to Stefan Ingves, the Committee's chair.

The final standards will not take effect until January 2017, but contain a number of significant changes that appear to respond to criticisms of the complexity of earlier capital requirements that are part of the Basel III framework. Nevertheless, the latest changes are being made to the Basel II framework, not Basel III.

Commenting on the revised standards, Ingves said international bodies had demonstrated an ability to collaborate closely and "combine disparate perspectives" to "arrive at relatively simple solutions for complex issues".

The Basel Committee said "notable" revisions to the existing framework include a single approach to calculating capital requirements for a bank's exposure to CCPs based on its contributions to the CCP's mutualised default fund, and the employment of the Basel Committee's standardised approach to calculating counterparty credit risk, published in March this year.

The Basel Committee came under fire last year over the complexity of capital requirements under Basel III, which allow banks to use opaque internal models to calculate their risk-weights. The Bank of England's executive director Andrew Haldane and Federal Deposit Insurance Corporation vice-chairman Thomas Hoenig were two prominent figures to voice concerns.

"You can game Basel II and Basel III, and the fact is they are gamed in every instance... Let's make Basel standards a measure that is simple enough to understand and enforce," said Hoenig, in an interview with the Central Banking journal in May.

With new rules on central clearing of derivatives trades being implemented, the role of CCPs in the financial system is growing. Benoît Cœuré, a member of the European Central Bank's executive board, warned last month that CCPs could be the next financial institutions to become ‘too big to fail'.

"On the one hand, there is greater scope for netting that allows for collateral savings, the lower cost of direct access and using CCPs, and an increase in transparency for both regulators and CCPs," Cœuré said. "On the other hand, there is a potential for systemic risks as CCPs may become too big to fail."