Last week, we provided you with an in-depth analysis of Basel’s latest capital construct:  a new charge for interest-rate risk (IRR) that, at least in theory, is posited as an alternative to another proposal, a tougher supervisory strategy (see FSM Report IRR6).  The FedFin report lays out key terms for each option, as well as the way they intersect – often confusingly.  We conclude that, despite Basel’s opening proposition – capital and supervision are distinct options – the approach would nonetheless create a new IRR capital charge.  It would be either up-front or back-door, but either way big banks would need to buckle up for a new capital requirement.  Does this make sense?

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