Biggest lenders face tougher capital rules
BIG BANKS could be underestimating their risks and so holding insufficient capital buffers against some loans, global regulators warned yesterday.
Currently the biggest banks can use their loan books to estimate the risk associated with different types of debt and so decide how much capital to set against them.
Stefan Ingves, head of the Bank if International Settlements, wants a regulatory floor to be set to stop banks estimating those risks at too low a level.
“We need to examine whether there is a case for the greater use of floors for products and markets where data are limited or where there are other characteristics that make them hard to model reliably,” Ingves said.
“In these instances, the case for relying completely on bank models to determine regulatory requirements is far from compelling.”
Ingves also hit out at claims banks will not spend on risk management if the risk weightings are dictated too closely by regulators.
He said the criticisms “reflect poorly on banks” and said that the proposed changes could build healthy incentives into the system.