specifically, Basel 2
.5 and Basel III RWA calculations include higher risk weights for exposures to market risk and counterparty credit risk, a capital charge for Credit Value Adjustment (CVA) risk, and increased capital charge for exposures to large and un-regulated financial institutions or Central Counterparties (CCPs).
'Meanwhile, we remain concerned about the absence of implementation of Basel 2.5 and Basel III in one of the world's largest economies,' added Priester.
According to the committee's report, the United States is not yet fully applying Basel II or Basel 2.5 rules (with implementation deadlines of end 2006 and end 2011 respectively), which preceded Basel III.
The new rules, known as Basel 2, require banks operating internationally to have capital equal to 8 percent of outstanding loans and other risk-weighted assets, the same level as under the exiting regulations, but Basel 2 calls for, among other things, stiffening assessment of risks involved in lending to borrowers.
But under Basel 2, which will be phased in from December 2006, risk weight will be assessed based on credit ratings assigned by private rating agencies to corporate borrowers.
Also under Basel 2, the greater loan-loss provisions a bank sets aside for a loan to a troubled company, the smaller risk weight will be assigned to such a loan, which in turn will help push up capital adequacy.
In computing the size of a bank's denominator, Basel 2 also takes into accounts the risks associated with possible computer-system paralysis or illicit activities by a bank's employees.
If a bank can be deemed to have high levels of methods for controlling a range of risks including loan-loss risks, Basel 2 would allow the bank to use its in-house credit ratings, rather than outside ratings, in assessing degrees of default risks posed by its borrowers.
In Japan, the Financial Services Agency is expected to revise relevant domestic regulations in tandem with Basel 2 with an eye to applying the new norms to banks' book-closings for the year to March 31, 2007, Japanese officials said.