Basel II: A tax on securitization

Author: | Published: 1 Dec 2006
The Swiss town of Basel, which has given its name to two accords on capital adequacy and so drawn the anger of banks worldwide

From January 1 2010, Basel II will be in full effect. The new rules are scheduled to come into effect for all EU banks on January 1 2007. One year later, additional rules for advanced banks will come into effect, with a two-year transition period. These rules will make highly-rated asset classes more popular, could lead to the restructuring of many conduits and will act as an additional capital tax on securitization.

Basel II will align bank regulatory capital requirements with the risk of exposure, reducing the amount of regulatory arbitrage that occurred under Basel I through transactions that did not change a bank's risk profile but reduced its capital requirements. Basel II will, for the first time, permit banks to calculate required capital on the...