The Basel Committee on Banking Supervision has approved a series of measures designed to strengthen the capital adequacy framework for large, global banks.

The latest package of measures approved by the committee at its July 8-9 meeting include modifications to the allocation of capital for trading exposures (imposing higher capital requirements for certain complex trading activities, and introducing a stressed value-at-risk requirement); and requiring higher risk weightings for certain securitization exposures.

It is also issuing additional guidance to address the flaws in risk management practices revealed by the crisis by raising the standards for: firm-wide governance and risk management; capturing the risk of off-balance sheet exposures and securitization activities; managing risk concentrations; and providing incentives for banks to better manage risk and returns over the long term. The guidance incorporates the principles for sound compensation practices issued by the Financial Stability Board.

The latest changes also strengthen disclosure requirements for securitizations, off-balance sheet exposures and trading activities in an effort to “help reduce market uncertainties about the strength of banks’ balance sheets related to capital market activities.”

Banks and their regulators are expected to begin implementing the new guidance immediately. The new capital requirements and disclosure requirements should be implemented by Dec. 31, 2010, the committee said.

IE