On December 2010 the Basel Committee released a consultative paper on the Capitalisation of bank exposures to central counterparties. In the document, Basel proposes a 2% risk weight for exposures to “qualifying” CCPs, with adherence to the CPSS and IOSCO standards being the qualification required. For default fund exposures, bank should capitalize according to an approach that is based on the CCP’s “hypothetical capital”, meaning the approach is based on CCP-specific information.

The Institute issued a joint response with ISDA, the BBA and GFMA urging the Basel Committee to ensure the incentive structure for CCPs does not result in excessively high margin requirements and to allow CCPs to use appropriately risk-sensitive models (such as an IMM model) for the hypothetical capital calculation. The Joint Associations also encourage the Basel Committee to work with Committee on Payment and Settlement Systems (“CPSS”) and the Technical Committee of the International Organization of Securities Commissions (“IOSCO”) to establish international minimum risk management standards for CCPs and to conduct a comprehensive and integrated analysis of how expanded use of CCPs will alter the potential for systemic risk.