The Basel Committee yesterday released an interim quantitative impact survey (QIS) on its pending fundamental review of the trading book (FRTB) capital rules for the largest banks. As we noted when the FRTB was proposed, it presents severe challenges to asset-backed securities like RMBS because the capital costs of holding them in the trading book would rise significantly. Recent industry efforts to rebut the FRTB have suggested that it would so squash private-label RMBS as to wreak market havoc. Basel’s analysis doesn’t – guess what – provide the data necessary to evaluate these claims, but it suggests strongly that they aren’t off-base and could even underestimate the adverse ABS impact of the FRTB on the biggest banks with the largest trading books that are particularly critical in this arena.
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