Basel Group Holds Ground on Risk Rules

Despite banker complaints that it is being too strict, the Basel Committee on Banking Supervision has stuck to its guns on market-risk rules.

The capital standards announced Tuesday by Basel Committee Chairman Tommaso Padoa-Schioppa do contain some changes from the group's April proposal.

Most important, bankers will be able to take account of factors that offset trading losses - when one security or derivatives contract rises in value if another drops - in calculating the risks posed by their activities.

But the standards stick to the basic formula proposed. Regulators will determine how much capital a bank must set aside, using either a standardized formula or banks' internal risk-management models. Use of the models is subject to a number of constraints that, U.S. bankers have complained, inflate the capital requirement.

Gay Evans, a managing director at Bankers Trust International in London and chairman of the International Swaps and Derivatives Association, said that while the Basel Committee didn't go as far as many bankers wanted, "obviously they have left the door open to continue the mutual dialogue between the industry and supervisors."

However, there was no mention in the Basel announcement of a Federal Reserve proposal that has won the fancy of the biggest U.S. derivatives dealers - the so-called precommitment plan that would let banks decide for themselves how much capital to set aside for trading, and face punishment from regulators and the markets if their trading losses exceed the capital cushion.

Mr. Padoa-Schioppo, vice director general of the Bank of Italy, said the market-risk standards will take effect at the end of 1997 at the latest.