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TCH Provides Recommendations to the Basel Committee on Its Proposed Revisions to the Standardized Approach for Credit Risk and Capital Floors

In a letter to the Basel Committee, The Clearing House Association identifies areas where the Proposals should be modified to better achieve the Committee’s stated objectives of making the Standardized Approach more risk-sensitive, reducing reliance on external credit ratings and strengthening the comparability of risk-weighted asset calculations across jurisdictions. The U.S. Standardized Approach, which came into effect only on January 1, 2015, acts as a statutory floor for organizations that calculate their risk-based capital ratios under the Advanced Approaches rules.  While The Clearing House generally favors globally consistent capital standards, changes to the Standardized Approach by the Basel Committee may not affect organizations in other jurisdictions that calculate their capital ratios only under the Advanced Approaches while U.S. federal banking agencies could be faced with the unfortunate choice of having to apply both the minimum U.S. Standardized Approach and some version of the revised Basel Standardized Approach to at least some subset of U.S. banking organizations.