Basel Committee starts wider overhaul of securitisation, sees more capital for asset-backed products

Global regulators have begun an overhaul of how banks should set aside capital to cover risks from securitised products after some turned toxic and triggered the 2007-09 financial crisis. The Basel Committee published a consultation on Tuesday which proposed tripling the "risk weighting" for asset-backed products so that banks hold more capital in case they become unsellable again, as they did during the U.S. subprime crisis and ensuing credit crunch. The current minimum risk weight is 7 percent and Basel, a committee of banking supervisors from nearly 30 countries, has proposed a floor of 20 percent. In the wake of the financial crisis, Basel introduced a quick fix, known as Basel 2.5, that already tripled how much capital banks must hold cover holdings of securitised debt. Tuesday's paper is a deeper, broader review of capital rules for the securitisation market and will be followed by an impact study next year and a further paper based on industry feedback.