In order to avoid future crisis of today’s magnitude, experts say the setting up a solid information base capturing global financial exposures is imperative. The problem with Basel I and Basel II is that they do not cover systemic risk and there is no global database that tracks cross border exposure.
There is a long list of exposures that are not transparent today, for example the cross-border links between large, complex financial institutions (LCFIs) and the whereabouts of credit default swaps, collateralized debt obligations and other asset-backed securities. Putting together a global “risk map” displaying financial links among LCFIs as well as the most important risk drivers, such as asset price changes and yield spread dynamics, would enable authorities to carry out financial system stress tests. Source: Financial Times 2/19/2009
BIIA welcomes this development and believes such an initiative would greatly improve the transparency of credit transactions worldwide, provided it is not just for the benefit of the financial services industry but also for investors and trade credit grantors.