GFMA drafted and today submitted comments to the Basel Committee on its Step-In Risk consultation (joined by CREFC, CREFC Europe, the Real Estate Roundtable). The Basel Committee issued this consultation to address the risk that a bank would ‘step in’ to provide voluntary, non-contractual support for a transaction (such as what banks did with SIVs or credit card ABS in the crisis). The Basel Committee’s proposal would require a bank to examine all off-balance sheet vehicles and other relationships which are not currently capitalized and, if step-in risk indicators are there, hold capital for them as if they were on-balance sheet. The proposal is very expansive and could require massive amounts of effective consolidation if read broadly. GFMA/CREFC/RER’s position is that the proposal is not needed given the massive amount of regulatory change (importantly including changes to off-balance sheet accounting rules, the Volcker Rule in the US, and other regulations) that have largely addressed this problem. We do not believe step-in risk is a material issue at this point and suggest the Basel Committee should forego implementing new rules in this area. We also raise significant concerns with the lack of clarity and expansive breadth of the proposal.
See also:
Identification and measurement of step-in risk – consultative document
