ISDA®
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC

NEWS RELEASE

For Immediate Release Thursday, October 11, 2007

For More Information, Please Contact:

Carmen Neumann, ISDA London, 0203 088 3554, cneumann@isda.org

Louise Marshall, ISDA New York, 212-901-6014, lmarshall@isda.org

 

ISDA PUBLISHES DEFAULT RISK STUDY

 

LONDON, Thursday, October 11, 2007The International Swaps and Derivatives Association (ISDA) today published the results of its Incremental Default Risk (IDR) Impact Study.

 

The Study was conducted in conjunction with seven leading international banks in order to assess the impact of IDR guidelines on banks’ regulatory capital. The IDR guidelines represent a major revision to the regulatory regime for trading book activities. If the guidelines are implemented as proposed by regulators, market risk regulatory capital can be expected to almost treble relative to the current VaR-based regime. Failure to align the IDR guidelines with the existing market risk capital rules can inappropriately shift firms’ primary attention to managing default risk in the trading book, whereas experience demonstrates that default risk is much less significant than market risk, even in turbulent markets.

The IDR Study complements a technical paper prepared by ISDA for the Accord Implementation Group Trading Book Working Group in January 2007. The paper recommended that the Basel Committee adopt a capital horizon of 60 days for modelling IDR in the trading book and permitted firms to reflect diversification between default risk and market risk.

Participating firms committed considerable time and resources to provide information and technical expertise to inform the regulatory process for the IDR guidelines. ISDA hopes that the study will encourage regulators to improve dialogue with industry participants and gain a better understanding of the technical nature of modelling for incremental default risk. This enhanced dialogue is a pre-requisite for developing a successful framework for this risk based on sound modelling principles.

 

ISDA’s IDR Impact Study is available at the Association’s website: www.isda.org.

 

About ISDA

ISDA, which represents participants in the privately negotiated derivatives industry, is among the world’s largest global financial trade associations as measured by number of member firms. ISDA was chartered in 1985, and today has approximately 820 member institutions from 56 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.

 

 

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