Move to tighten rules on bank capital buffers

Global banking regulators have outlined how they will crack down on wide variations in the way big banks calculate the size of their capital buffers.

Regulators on the Basel Committee, which sets rules for the sector worldwide, worry such variations undermine investor confidence in the capital ratios, a key measure of financial health.

The committee yesterday outlined policy measures and fixes it will consult on over the coming year, reflecting a view that there is no single cause or solution to the problem.

It will consult on stricter supervision of computer models the biggest banks use to apportion risk weightings to different assets they hold to determine capital holdings.

“The modifications under consideration will narrow the modelling choices available to banks, particularly in areas which by their nature are not amenable to modelling, and will serve to increase consistency and reduce complexity,” they said.

There would be guidance on how supervisors should vet models used by big banks and other fixes like tighter definitions of defaulting loans.

Medium-sized and smaller lenders use a so-called standardised approach to assessing risks on their books and this will also be reviewed, the committee said.

It will propose a stricter “floor” on capital.

“It will also provide a standardised regulatory-determined risk measure against which capital outcomes calculated using risk models can be compared, allowing for greater comparability across banks,” it said.

Basel is looking at whether considerable simplification is needed in the way bigger banks measure operational risks, such as from potential fines, losses from fraud or systems failures.



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