The Basel Committee on Banking Supervision (BCBS) has issued its latest newsletter (no 17) which covers risk weight for the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF).
In the newsletter, the BSCS explains that it has agreed that supervisors may allow banks to apply a 0% risk weight to claims on the ESM and the EFSF. The ESM and EFSF will be included in the list of entities receiving a 0% risk weight set out in paragraph 56 of the BCBS document entitled Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework – Comprehensive version (June 2006). As a result, claims on the ESM and EFSF will be included as level 1 high quality liquid assets in accordance with paragraph 50(c) of the BCBS document entitled Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools.
View Basel Committee newsletter no 17 – Risk weight for the European Stability Mechanism and European Financial Stability Facility, 18 March 2014