ECB to monitor banks’ risk models

The European Central Bank plans to inspect the internal models that banks use to calculate their risks to ensure that these systems behave consistently, a senior policymaker said yesterday.

Regulators have had in-house computer models in their sights in the wake of the financial crisis due to concerns some banks may attempt to downplay the riskiness of their assets and hold less capital than they should.

The ECB, which took over as the eurozone’s leading financial regulator in November, aims to compare these models using regional data and look for inconsistencies, said ECB executive board member Sabine Lautenschlaeger at a conference in Frankfurt, yesterday.

Ms Lautenschlaeger’s comments referred to the way banks use financial models to assess the market risks they are taking .

The ECB’s attention to these models is part of a wider push to impose order on the sector, which could lead to changes in the way banks do business.

“The ECB will use its position as a supervisor to gain an in-depth understanding of internal model issues and exploit its cross-sectional overview of some of the world’s largest banks to address any inconsistencies in a very direct way,” said Ms Lautenschlaeger. “In next two or three years we will look into every model.”

The ECB is also charged with regularly checking that banks have viable business models, something that has not been done consistently in all the eurozone states.

A top ECB regulator said on Monday the central bank would be intrusive when it checks banks’ business models .

Korbinian Ibel, a top ECB regulator, said that the eurozone’s new financial regulator would venture into the biggest and most risky banks first with its model checks before moving to potentially less threatening banks.


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