Basel plans to toughens up 'shadow bank' capital rule

Fri Jul 5, 2013 7:08am EDT
 
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LONDON (Reuters) - Global regulators proposed on Friday that banks set aside more capital to cover investments in "shadow banks" such as private equity or hedge funds to improve cover for underlying risks.

Policymakers worry that as mainstream banks become more tightly regulated, risks will shift to other financial businesses that handle credit but have been less regulated than the banks.

The Basel Committee of banking supervisors from the world's top financial centers said on Friday that more clarity and consistency is needed on its existing rule for how banks set aside capital to cover exposure to equity funds.

Basel will make it a requirement for banks to adopt a "look-through" approach, meaning that banks will have to calculate risks from their exposure to a fund as if they owned the fund. A public consultation on the proposed change will close on October 4.

"The committee believes the revised standard will more appropriately reflect the risk of a fund's underlying investments and its leverage," the committee said in a statement.

"The revised standard will also help address risks associated with banks' interactions with shadow banking entities."

(Reporting by Huw Jones; Editing by David Goodman)