March 01, 2008
The OCC Calls on Basel to Revisit Subprime
Posted by David Zaring

John Duggan, the Comptroller of the Currency, just called on the Basel Committee to re-think how much it would count subprime mortgage securities towards establishing the adequacy of the capital reserves of regulated banks.  Of course, this used to be the kind of thing that the Comptroller of the Currency could do on his own, without persuading foreign bank supervisors of the merits of the idea on his next trip to Switzerland.  Anyway, here's what he said:

regulators need to reconsider the part of the Basel II capital rules that apply to senior tranches of re-securitized structured credit such as [collateralized debt obligations consisting of securities backed by subprime mortgages]. While the Basel II framework recognized the greater systematic risk embedded in securitization exposures when compared to corporate exposures, we need to take another look to see if the differences that were incorporated went far enough. For example, should the securitization provisions of Basel II establish a unique set of higher risk weights for [collateralized debt obligations consisting of securities backed by subprime mortgages] and other re-securitizations, reflecting the higher vulnerability to systematic risk as evidenced by recent events?

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