Regulatory Alerts2012-02-21
Added · Updated
Basel Guidance on High-cost Credit Protection
The Hong Kong Monetary Authority issued this letter to alert authorized institutions to the Basel Committee on Banking Supervision's guidance on high-cost credit protection. The guidance defines such protection as transactions structured to provide short-term capital benefits while deferring loss recognition, often resulting in ineffective credit risk transfer. Authorized institutions are required to analyze and document the economic substance of these transactions and report innovative positions to the regulator for appropriate prudential treatment.