ISDA®

INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION

NEWS RELEASE

For Immediate Release Thursday, May 31, 2001

For More Information, Please Contact:

Emmanuelle Sebton, ISDA London, (44) 207-330-3550; Fax (44) 207 330-3555; esebton@isda-eur.org

Stacy Carey, ISDA New York, (212) 332-1200; Fax (212) 332-1212; scarey@isda.org

ISDA Suggests Further Improvements to Basel Capital Accord

New York, Thursday, May 31, 2001 – The International Swaps and Derivatives Association (ISDA) today released its formal response to the Basel Committee on Banking Supervision’s Consultative Paper on the New Capital Accord.

“The new proposal shows true willingness on the part of the Basel supervisors to establish a flexible and risk sensitive capital adequacy framework. We look forward to continuing our dialogue with the Basel Committee to improve and finalize the new Capital Accord by the end of the year,” said Robert Pickel, ISDA’s Executive Director and CEO.

Among the significant positive changes of the proposed Accord highlighted in the ISDA response:

· Increased reliance on a bank’s internal ratings and risk management;

· Capital charges that better reflect underlying credit risk; and

· Greater freedom for banks to manage credit and operational risk.

Among the areas that the ISDA response highlights as requiring further improvement are:

· Introduction of rigid capital floors that hamper flexibility and increase costs;

· Arbitrariness in the introduction of charges for operational risk and the imposition of a legal charge on credit risk, creating inequitable treatment of comparable instruments; and

· Calibration of the internal ratings based function, which is not reflective of market practice.

“The Accord takes significant steps toward defining an approach to setting banks’ capital requirements which is risk sensitive, granular and flexible, yet there are several areas that are inconsistent with the overall goals of the Accord and existing bank best practices,” notes Emmanuelle Sebton, Head of Risk Management for ISDA.

Members of ISDA’s Capital Accord Steering Group and related working groups formulated the response. ISDA’s response process was closely coordinated with the European Banking Federation with some sections drafted jointly with the London Investment Banking Association and the British Bankers’ Association.

The full text of the response and highlights of the response can be accessed in the “What’s New” section on ISDA’s web site: www.isda.org. Highlights of the response will also follow this release.

ISDA has defined a precise work program for the coming months, including further research on the calibration of the capital charge and the treatment of equity investments and specific risk in the trading book. ISDA would welcome further dialogue with the regulators on credit risk mitigation and operational risk.

^®ISDA is a registered trademark of the International Swaps & Derivatives Association, Inc.