Borrowers in the UAE may find ways to obtain credit from foreign banks which are not bound by those constraints. The CBUAE will therefore need to continuously assess its position on internal models. The backstop decided by the Basel Committee – a floor of 72.5% of Standardized Approach requirements - is hence a welcomed development.
First, excess reserves have averaged $ billion throughout 2010, and the foreign exchange situation is strong enough to afford such loans. Second, interest rate differentials between domestic and foreign interest rates have virtually disappeared and investors are looking for investment opportunities. In principle, there is the potential for both bank and capital market financing.