For Immediate Release March 4, 2004
For More Information, Please Contact:
Louise Marshall, ISDA New York, (212) 901-6000, lmarshall@isda.org
ISDA, LIBA AND TBMA PUBLISH COMPENDIUM
ON CAPITAL TREATMENT OF TRADING BOOK ITEMS
This compendium is intended to assist the review by
the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions of the capital
treatment of counterparty credit risk and credit risk mitigation, announced by
the Basel Committee in January 2004. It collects in one place useful research
pieces and surveys produced on these topics by ISDA and the Federal Reserve
Board, over the course of the past three years.
The compendium includes detailed industry
recommendations on the measurement of future exposure arising from OTC
derivative and securities financing transactions, the calibration of the
Federal Reserve Board model of double default and double recovery effects, as
well as specific risk offsets.
Also contained is a
prospective list of issues which the industry believes the regulators should
address without delay. It is essential that regulators review the measurement
of future exposure in counterparty risk capital calculations, as these are
currently predicated upon an inadequate aggregation approach. This approach
relies on information about positive and negative valued transactions in a
portfolio to assess the degree of diversification present. However, the
correspondence between this approach and real diversification, which is a function
not of the values of transactions but of their risk positions, is weak. As a
result, the aggregation approach fails to measure true risk.
The Associations understand that a joint working
group is currently being set up between the Basel Committee and IOSCO for the
purpose of conducting the trading book review.
The Associations hope that the compendium will serve
as a document of reference in their future dialogue with this working group.
The compendium is available free of charge on the web
site of each of the Associations at www.isda.org, www.liba.org.uk,
www.bondmarkets.com.
ISDA is the global trade association representing
leading participants in the privately negotiated derivatives industry. ISDA was
chartered in 1985, and today has more than 600 member institutions from 46 countries on six continents. These members
include most of the world's major institutions that deal in privately
negotiated derivatives, as well as many of the businesses, governmental
entities and other end users that rely on over-the-counter derivatives to
manage efficiently the financial market risks inherent in their core economic
activities. Information about ISDA
and its activities is available on the Association's web site: www.isda.org.
®ISDA is a registered trademark of the
International Swaps & Derivatives Association, Inc.
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