Basel Committee still pondering its approach to capital risk measures

The allocation of capital by banks for interest rate risk is the subject of more scrutiny by global regulators and may lead to more prescriptive methods intended to minimise regulatory arbitrage.

The Basel Committee on Banking Supervision this week outlined two options, extending a review process that's already taken three years.

The first option is for a uniform, mandated measure for calculating minimum capital requirements. The BCBS said this "would have the benefit of promoting greater consistency, transparency and comparability, promoting market confidence in banks' capital adequacy and a level playing field internationally."

The second option would give more discretion to local supervisors and also require more disclosure.

The BCBS, in a consultation paper, wrote that: "in the lead-up to the [2008] crisis, banks could designate instruments with observable market prices to the trading book by claiming trading intent - a subjective concept which was difficult for supervisors to invalidate.

"During the crisis, many positions became illiquid and some banks avoided the impact on income by redesignating such positions to the banking book and subjecting them only to the minimum capital requirements for credit default risk."