Committee Proposes Prudential Guidelines for Banks

Global financial authorities are considering a review of prudential guidelines for banks in relation to their equity investments in funds.

The Basel Committee on Banking Supervision, a body of global financial authorities, at the weekend published a set of proposals that would revise the prudential treatment of banks’ equity investments in funds.

The revised guideline is expected to address the issue of underlying risk and leverage as well as align banks’ investments in the context of the globally accepted risk-based capital framework.

“In reviewing the existing standard for banks’ equity investments in funds, the Committee’s objective was to develop an appropriately risk sensitive and consistently applied risk-based capital regime. The existing standard would benefit from further clarity in some areas. In addition, it does not require banks to reflect a fund’s leverage when determining capital requirements associated with their investments in a fund, even though leverage is an important risk driver,” the Committee stated.