Rufus Folorunso Akinyooye - St Clements University

Item 35 declares that the countries for this second option would be full members of OECD or
countries which have concluded special lending arrangements with the IMF associated with
the Funds General Arrangement to Borrow.
OECD Countries are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland,
France, Germany, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland,
Portugal, Slovak Republic, Greece, Hungary, Iceland, Ireland, Italy, Japan, Spain, Sweden,
Switzerland, Turkey, United Kingdom and United States.
Item 36 states that claim on contract governments within the OECD will attract a zero weight
(or a low weight if the national supervisory authority elects to incorporate interest rate risk);
and claims on OECD non-centrals government public-sector entities will attract a low weight.
Claims on central governments within the OECD will attract a zero weight (or a low weight if
the national supervisory authority elects to incorporate interest rate risk); and claims on OECD
non-central government public-sector entities will attract a low weight. Claims on central
governments and central banks outside the OECD will also attract a zero weight if the funding
and denomination are in their national currencies. In effect servicing them would not require
foreign exchange hence the transfer risk would be zero.
Item 37 agrees there is no need to differentiate interbank short-term claims whether
incorporated inside or outside OECD. Long-term cross-border loans with a residual maturity
of up to and including one year will however attract a 20% risk weight wherever incorporated
banks will be weighted at 20% while for banks incorporated outside OECD the risk weight will
be 100%.
. The provision seems to favour interbank claims within the OECD by imposing lower weights
while claim on banks incorporated outside the group attract a 100% risk weight. In effect any
OECD member bank doing cross-border lending business with banks incorporated outside the
group must be ready to provide a regulatory capital of 100% for all the advances made to such
banks. The purpose appears to be to discourage cross-border lending to less developed
countries of this world so as to ensure the safety of OECD/G10 banks.
Item 38 deals with claims on non-central government and public sector entities (PSEs). It
declares that in order to preserve a degree of convergence in the weight applicable to claims on
G10 public sector entities below the level of central governments (i.e. States, Local authorities
etc.) the weight should be 0, 10, 20 or 50%. PSEs in other countries within the OECD will have
a 20% standard weight attached to claims on them. The Committee subjects this arrangement
to review in pursuit of further convergence towards common weights and consistent
definitions in member countries and in the light of decisions that would be taken within the
European Community on the specification of a common solvency ratio for credit institutions.
For commercial companies, claims on them will be a uniform 100% if they are owned by the
public sector to avoid competitive inequality with similar private sector commercial
enterprises.
Item 39 is on Collateral and guarantees and it recognizes the limitation in reducing credit risk.
It further states that because of the divergent practices and experiences of member countries it
has not been found possible to develop a basis for recognizing collateral generally in the
weighting system. The more limited recognition was however given to loans secured against
cash or against securities issued by OECD central governments and specified multilateral