Newsletter May 09: EU mulls harshest rule for complex products

Although proposed changes to the European Commission’s prudential regulatory regime for banks have mostly followed closely those issued by the Basel Committee, the one notable exception concerns re-securitisations. Whereas the Basel Committee is proposing to raise the risk weights for products such CDOs constructed from asset-backed securities (ABS) or CDOs that comprise a package of other CDOs, the European Commission is suggesting that such products should be completely deducted from capital – an effective risk weight of 1,250%.