Regulatory Alerts2012-02-21
Added · Updated
Basel Guidance on High-cost Credit Protection
The Basel Committee on Banking Supervision issued this statement to alert banks and supervisors to potential regulatory capital arbitrage in high-cost credit protection transactions. It requires banks to consider unrecognised protection costs when assessing significant credit risk transfer and capital adequacy, particularly within the securitisation framework. Supervisors are instructed to scrutinise transactions with excessive premiums, deferred loss recognition, or structural features that undermine genuine risk mitigation.