The Basel Committee on Banking Supervision has published for a comment a series of proposed changes to the Basel II capital adequacy framework designed to strengthen the supervisory environment for banks in the wake of the credit crisis, the committee said Friday.

The proposed reforms to capital requirements cover:

> trading book exposures, including complex and illiquid credit products;

> certain complex securitisations (such as collateralized debt obligations of asset-backed securities); and

> exposures to off-balance sheet vehicles (asset-backed commercial paper conduits).

The committee is also proposing standards to promote more rigorous supervision and management of risk concentrations, off-balance sheet exposures, securitisations and reputational risks. And, through the supervisory review process, the committee says that it is promoting improvements to financial instrument valuation, the management of funding liquidity risks and firm-wide stress testing practices.

In addition, the committee is proposing enhanced disclosure requirements for securitizations and sponsorship of off-balance sheet vehicles, which should provide market participants with a better understanding of an institution’s overall risk profile.

The proposed revisions to the capital requirements for the trading book would be implemented in December 2010 while the other improvements, including those related to risk management and disclosures, are to be introduced by the end of 2009.

Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, said that “the proposed enhancements will help ensure that the risks inherent in banks’ portfolios related to trading activities, securitizations and exposures to off-balance sheet vehicles are better reflected in minimum capital requirements, risk management practices and accompanying disclosures to the public.”

Comments on the proposed reforms to the Basel II market risk framework and the guidelines for computing capital for incremental risk in the trading book should be submitted by March 13.

Comments on the proposed enhancements to the Basel II framework are due by April 17.

IE