PT - JOURNAL ARTICLE AU - Miles Bake AU - Kevin P Hawken AU - Carol Hitselberger AU - Robert F Hugi AU - Jason H. P Kravitt TI - Basel II Modified in Response to Market Crisis AID - 10.3905/JSF.2010.15.4.019 DP - 2010 Jan 31 TA - The Journal of Structured Finance PG - 19--28 VI - 15 IP - 4 4099 - https://pm-research.com/content/15/4/19.short 4100 - https://pm-research.com/content/15/4/19.full AB - The Basel Committee on Banking Supervision has adopted amendments to the Basel II Capital Accord in response to the financial-markets crisis. The amendments deal with risk-based capital requirements for banking book exposures and the trading book framework. The changes to the banking book rules relate solely to securitization exposures, which are subject to a framework separate from those that apply to retail, wholesale, or equity exposures. Some of the most important changes relate to “resecuritization exposures,” a concept that is new to the Basel II framework and is meant to capture collateralized debt obligations (CDOs) of asset-backed securities (ABS) and other structures with similarly elevated correlation risks, but may also cover some exposures to asset-backed commercial paper (ABCP) conduits and other less risky structures. Other changes the Basel Committee has made to the banking book securitization framework include denying effect to self guaranties, changes to both the standardized and the internal risk-based (IRB) approach to ABCP liquidity facilities, elimination of special treatment for general market disruption liquidity facilities, and additional operational requirements banks must satisfy to use the securitization framework. In addition to addressing minimum quantitative capital requirements (Pillar 1), the Basel Committee provides supplemental guidance for the two “qualitative pillars,” the supervisory review process (Pillar 2) and market discipline (Pillar 3). Finally, believing that the current capital framework for market risk fails to capture some key risks, the Basel Committee now requires a stressed value at risk (VaR) measure as an add-on to the general market risk capital component. These changes are part of a continuing trend by the Basel Committee and national regulators to tighten bank capital requirements, especially for structured finance.TOPICS: CLOs, CDOs, and other structured credit, asset-backed securities (ABS)