Global Financial Regulators Working on Plan to Prevent Future Losses

Basel, Switzerland–To prevent large future losses, international supervisors and regulators are creating a system that will make it more costly for investment banks to keep big volumes of complex financial instruments–such as mortgage-linked securities–in their trading books, the Financial Times reports.The Financial Stability Forum, a group of global regulators and supervisors headquartered in Basel, Switzerland, are handling the new plan, which could make banks alter their asset repackaging business models, including the way they repackage mortgages into complex financial securities.The new regulations will be designed to help prevent the large, surprise losses that banks such as UBS announced in recent months due to the U.S. subprime market collapse. They reportedly will cut incentives for banks to take part in “warehousing” actions, which involve holding repackaged assets within a bank for an undetermined period before selling the assets to external investors.The Financial Stability Forum has been reconsidering bank trading book regulations for “a couple of years,” the Times said.