Wednesday, December 21, 2011

BCBS: Application of own credit risk adjustments to derivatives - consultative document

Application of own credit risk adjustments to derivatives - Basel Committee consultative document
December 21, 2011
http://www.bis.org/press/p111221.htm

The Basel Committee today issued a consultative document on the application of own credit risk adjustments to derivatives.

The Basel III rules seek to ensure that a deterioration in a bank's own creditworthiness does not at the same time lead to an increase in its common equity as a result of a reduction in the value of the bank's liabilities. Paragraph 75 of the Basel III rules requires a bank to "[d]erecognise in the calculation of Common Equity Tier 1, all unrealised gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk".

The application of paragraph 75 to fair valued derivatives is not straightforward since their valuations depend on a range of factors other than the bank's own creditworthiness. The consultative paper proposes that debit valuation adjustments (DVAs) for over-the-counter derivatives and securities financing transactions should be fully deducted in the calculation of Common Equity Tier 1. It briefly reviews other options for applying the underlying concept of paragraph 75 to these products and the reasons these alternatives were not supported by the Basel Committee.

The Basel Committee welcomes comments on all aspects of this consultative document by Friday 17 February 2012. Comments should be sent to baselcommittee@bis.org. Alternatively, comments may be submitted to the following address: Basel Committee on Banking Supervision, Bank for International Settlements, Centralbahnplatz 2, 4002 Basel, Switzerland. All comments may be published on the BIS website unless a commenter specifically requests confidential treatment.


Summary (http://www.bis.org/publ/bcbs214.htm, edited):

A deterioration in a bank's own creditworthiness can lead to an increase in the bank's common equity as a result of a reduction in the value of its liabilities. The Basel III rules seek to prevent this. Paragraph 75 of the Basel III rules requires a bank to "[d]erecognise in the calculation of Common Equity Tier 1, all unrealised gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk". The application of paragraph 75 to fair valued derivatives is not straightforward since their valuations depend on a range of factors other than the bank's own creditworthiness. The consultative paper proposes that debit valuation adjustments (DVAs) for over-the-counter derivatives and securities financing transactions should be fully deducted in the calculation of Common Equity Tier 1. It briefly reviews other options for applying the underlying concept of paragraph 75 to these products and the reasons these alternatives were not supported by the Basel Committee.

PDF: http://www.bis.org/publ/bcbs214.pdf

2011: A Year of Important Pharmacological Advances for Patients

2011: A Year of Important Pharmacological Advances for Patients
December 21, 2011
http://www.innovation.org/index.cfm/NewsCenter/Newsletters?NID=193

New advances in biopharmaceuticals came as welcome good news for U.S. patients. In recent years, despite increasing investments in R&D, fewer medicines have recieved approval, reminding us just how difficult drug discovery is. But in 2011 there were more new medicines approved than in recent years and these approvals represented important advances in many areas.

The Food and Drug Administration reported in November that in fiscal year 2011 (10/1/10–9/30/11) there were 35 new medicines approved,[i] among the highest in the last decade. According to the FDA report, "few years have seen as many important advances for patients." The final tally of medicines approved in calendar year 2011 waits to be seen but it is clear that 2011 has been a great year for advancing the fight on many disease fronts. Below is information on some of the treatments highlighted in the FDA report.

Cancer: With improvements in early detection and a steady stream of new and enhanced treatments cancer can be more effectively managed and even beaten. Two new personalized medicines for lung cancer and melanoma now provide effective options for patients with tumors expressing certain genetic markers.[ii] The personalized melanoma treatment and another new melanoma medicine became the first new approvals for the disease in 13 years. Read about continued efforts to improve cancer treatment and the 887 medicines currently in development.

Rare Diseases: An estimated 25-30 million Americans suffer from rare or "orphan" diseases, which are often among the most devastating to patients and complex for researchers.[iii] However, advances in science have allowed us to hone in on the causes of many rare diseases and translate those findings into new treatments. Between January 1st and December 7th 2011, eleven new medicines to treat rare diseases were made available to patients for diseases such as the genetic defect congenital Factor XIII deficiency, several cancers, and scorpion poisoning.[iv] A record 460 new medicines are in clinical trials or awaiting FDA review.[v] Read more about the ongoing commitment to improve treatment for rare diseases.

Lupus: Lupus is a serious and potentially fatal autoimmune disease that attacks healthy organs and tissues of the body. For the approximately 300,000 to 1.5 million lupus sufferers in the U.S. the last approved drug came in 1955. This year a newly approved medicine ended that drought with a new approach to treating lupus. Read more about medicines in development for autoimmune diseases.

Hepatitis C: Hepatitis C is a chronic viral disease that affects the liver and can lead liver cancer and liver failure. It affects approximately 3 million people in the United States. Two new medicines approved this year are the first in a new class and offer a greater chance of cure for some patients compared with existing therapies. For more information on medicines in development for infectious diseases, click here.

This is only a partial list of the many advances approved in 2011, for a more complete listing visit www.FDA.org.

Looking ahead to 2012, biomedical research continues to draw us in new directions and helps us to better understand the cause and progression of disease. Coupled with innovative approaches at the bench and in the clinic, we can better prevent, detect, and treat disease to save and improve lives.


References
[i]US Food and Drug Administration, FY2011 Innovative Drug Approvals, (November 2011) http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/ucm276385.htm

[ii]US Food and Drug Administration, FY2011 Innovative Drug Approvals, (November 2011) http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/ucm276385.htm

[iii]PhRMA, Orphan Drugs in Development for Rare Diseases (February 2011) http://www.phrma.org/sites/default/files/878/rarediseases2011.pdf

[iv]US Food and Drug Administration, CDER New Drug Review: 2011 Update (December 2011) http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM282984.pdf

[v]PhRMA, Orphan Drugs in Development for Rare Diseases (February 2011) http://www.phrma.org/sites/default/files/878/rarediseases2011.pdf

BCBS: revised "Core principles for effective banking supervision" - consultative paper

Consultative paper on revised "Core principles for effective banking supervision" issued by the Basel Committee
December 20, 2011
http://www.bis.org/press/p111220.htm

The Basel Committee on Banking Supervision today issued for public comment its revised "Core principles for effective banking supervision" [http://www.bis.org/publ/bcbs213.htm].

The consultative paper updates the Committee's 2006 "Core principles for effective banking supervision" [http://www.bis.org/publ/bcbs129.htm] and the associated "Core principles methodology" [http://www.bis.org/publ/bcbs130.htm], and merges the two documents into one. The Core Principles have also been re-ordered, highlighting the difference between what supervisors do themselves and what they expect banks to do: Principles 1 to 13 address supervisory powers, responsibilities and functions, focusing on effective risk-based supervision, and the need for early intervention and timely supervisory actions. Principles 14 to 29 cover supervisory expectations of banks, emphasising the importance of good corporate governance and risk management, as well as compliance with supervisory standards.

Among other things, the revision of the Core Principles builds on the lessons of the last financial crisis. The Core Principles have been enhanced to strengthen supervisory practices and risk management. In addition, the revised Core Principles respond to several key trends and developments that emerged during the last few years of market turmoil: the need for greater intensity and resources to deal effectively with systemically important banks; the importance of applying a system-wide, macro perspective to the microprudential supervision of banks to assist in identifying, analysing and taking pre-emptive action to address systemic risk; and the increasing focus on effective crisis management, recovery and resolution measures in reducing both the probability and impact of a bank failure.

Ms Sabine Lautenschl├Ąger, Co-chair of the Core Principles Group and Vice-President of the Deutsche Bundesbank, noted that "the revised Core Principles contribute to the broader ongoing effort by the Basel Committee to raise the bar for banking supervision in the post-crisis era". She added that "the Committee has achieved a lot in terms of rule-making over the past five years and this work will be instrumental in firmly entrenching many of the supervisory lessons and regulatory developments since the Core Principles were last revised".

The latest revision ensures the continued relevance of the Core Principles in providing a benchmark for supervisory practices that will withstand the test of time and changing environments. The total number of Core Principles has increased from 25 to 29; 36 new essential and additional criteria have been introduced and another 33 additional criteria have been upgraded to essential criteria that represent minimum baseline requirements for all countries.

The Core Principles are the de facto framework of minimum standards for sound supervisory practices and are universally applicable. The Committee believes that implementation of the revised Core Principles by all countries will be a significant step towards improving financial stability domestically and internationally, and provide a good basis for further development of effective supervisory systems.

"With the advent of various policy measures for addressing both bank-specific and broader systemic risks, the key challenge in this revision of the Core Principles has been to uphold their relevance for different jurisdictions and banking systems," stated Ms Teo Swee Lian, Co-chair of the Core Principles Group and Deputy Managing Director of the Monetary Authority of Singapore. "As highlighted in the paper, a proportionate approach achieves this through advocating risk-based supervision and supervisory expectations that are commensurate with a bank's risk profile and systemic importance."

The revised Core Principles represented the collective efforts between the Basel Committee and other banking supervisors from around the world, as well as the International Monetary Fund and the World Bank.

For information purposes, a document comparing the 2006 assessment methodology with the revised version has also been posted. This document is provided to facilitate a direct comparison between the two versions of assessment criteria.

The Basel Committee welcomes comments on the revised Core Principles. Comments should be submitted by Tuesday 20 March 2012 by email to: baselcommittee@bis.org. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the Bank for International Settlements's website unless a commenter specifically requests confidential treatment.


PDF: http://www.bis.org/publ/bcbs213.pdf (84 pages)