Interesting development out of the Basel Committee, highlighting how divergent EU rules on OTC derivatives have resulted in a poor grade on Basel III compliance.
The Basel Committee on Banking Supervision said that EU legislation to apply...Basel III is “materially non-compliant,” the lowest grade given by the group so far in its review process of member nations. Deficiencies in EU rules include “the treatment of exposures to SMEs, corporates and sovereigns,” as well as exemptions to part of Basel’s treatment of derivatives trades, the group said in a report on its website today. The committee also published an assessment on the U.S., judging it “largely compliant” with the standards. The EU rules depart from Basel standards for over-the-counter derivatives in a way that “materially boosts bank capital ratios,” the Basel committee said. This arises from exemptions to rules on how banks should take into account the market value of contracts that aren’t traded via clearinghouses.