The Clearing House Comments on Basel Committee Credit Risk Proposal and Capital Floor Proposal

Ladies and Gentlemen:

The Clearing House Association L.L.C. (“The Clearing House”)[1] appreciates the opportunity to comment on the consultative document by the Basel Committee on Banking Supervision (the “Basel Committee”) entitled “Revisions to the Standardised Approach for Credit Risk” (the “Credit Risk Proposal”)[2] and certain aspects of the companion consultative document entitled “Capital Floors: the Design of a Framework Based on Standardized Approaches” (the “Capital Floor Proposal” and, together with the Credit Risk Proposal, the “Proposals”).[3]

The Credit Risk Proposal’s stated goals are to revise the Basel Committee’s current standardized approach for credit risk (the “Standardized Approach”)[4] primarily by reducing reliance on external credit ratings, increasing risk sensitivity, and strengthening the comparability of risk weighted asset calculations as between the Standardized Approach and the Basel Committee’s advanced internal ratings-based approach (the “Advanced Approach”),[5] while continuing to ensure that the Standardized Approach remains “simple, intuitive, readily available and capable of explaining risk across jurisdictions.”[6]

As an overarching matter, The Clearing House strongly supports the maintenance by banking organizations of robust and risk-appropriate capital levels and the Basel Committee’s efforts to improve the Standardized Approach. Our comments are designed to identify areas where we believe the Credit Risk Proposal should be modified to better support the Basel Committee’s stated objectives. Even at a conceptual level, however, our ability to meaningfully comment is limited in the absence of a fulsome quantitative analysis of the Proposals. We believe that the Basel Committee’s efforts to gather data through a quantitative impact study (“QIS”) is crucial to the development of the Credit Risk Proposal’s modifications to the Standardized Approach and the Capital Floor Proposal—both as to their respective calibration and, perhaps even more importantly, as to the conceptual underpinnings of the revised frameworks themselves. Simply put, the Proposals’ analytical rationales cannot be fully evaluated in the absence of the QIS data whereby the proposed changes are tested against real world data. For example, and as described in further detail below, QIS data may demonstrate that the use of a “one size fits all” leverage metric for corporate exposures may not properly recognize legitimate differences in acceptable levels of leverage across industries. Accordingly, our comments reflect our preliminary views, which we intend to supplement over time as further information becomes available both as part of our own data collection efforts and analysis and in response to the results of the QIS.

Part I of this letter provides an executive summary of our comments; Part II discusses our comments to the Proposals relating to specific exposure classes; Part III of this letter sets forth our comments on the proposal on credit risk mitigation; Part IV of this letter addresses the importance of national discretion as it relates to the application of the Proposals and the intersection with otherwise existing domestic law; and Part V sets forth our comments with respect to the Capital Floor Proposal.

To read the full comment letter, click here, or click on the download button below.

[1] Established in 1853, The Clearing House is the oldest banking association and payments company in the United States. It is owned by the world’s largest commercial banks, which collectively hold more than half of all U.S. deposits and which employ over one million people in the United States and more than two million people worldwide. The Clearing House Association L.L.C. is a nonpartisan advocacy organization that represents the interests of its owner banks by developing and promoting policies to support a safe, sound and competitive banking system that serves customers and communities. Its affiliate, The Clearing House Payments Company L.L.C., which is regulated as a systemically important financial market utility, owns and operates payments technology infrastructure that provides safe and efficient payment, clearing and settlement services to financial institutions, and leads innovation and thought leadership activities for the next generation of payments. It clears almost $2 trillion each day, representing nearly half of all automated clearing house, funds transfer and check-image payments made in the United States. See, The Clearing House’s web page at

[2] Basel Committee, Consultative Document: Revisions to the Standardised Approach for Credit Risk (Credit Risk Proposal) (December 2014), available at:

[3] Basel Committee, Capital Floors: the Design of a Framework Based on Standardised Approaches – Consultative Document (December 2014), available at:

[4] See, Basel Committee, Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework – Comprehensive Version (Basel II) (June 2006), available at:

[5] See id., at ¶¶ 211-537.

[6] Credit Risk Proposal at page 5.