The Basel Committee on Banking Supervision (BCBS) has published a final standard that revises the prudential treatment of banks’ investments in the equity of funds within the Basel risk-based capital framework.

The revised policy framework is scheduled to take effect from 1 January 2017 and will apply to banks’ equity investments in all funds that are not held for trading purposes.

The BCBS’ objective in revising the treatment of banks’ equity investments in funds is to develop an appropriately risk-sensitive and consistently applied risk-based capital regime. The revised standard improves upon the existing regime by:

  • incorporating a fund’s leverage when determining the capital requirements for banks’ investments;
  • clarifying the application of the Basel framework’s capital adequacy standards for credit risk; and
  • more appropriately reflecting the risk of a fund’s underlying investments, including a higher capital requirement for situations in which a fund’s holdings are not sufficiently transparent.

View Capital requirements for banks’ equity investments in funds – final standard, 13 December 2013