Basel tightens screw on banks
INTERNATIONAL regulators are “tightening the screw” on banks by revising the rules that govern how they estimate balance sheet risks.
The Basel Committee, a group of central bankers and regulators, has kicked off a consultation on how banks should model risks and what rules should govern what they put in their trading books versus their banking books.
The distinction is important because trading books, which largely comprise wholesale operations, and more retail-focused banking books use different accounting and risk systems. And the Basel Committee says that lenders are engaging in “regulatory arbitrage” by moving assets between the two.
Among its proposals are tighter criteria for where an asset sits and a greater use of standardised risk models alongside banks’ own modelling. They even suggest that using regulators’ models should be “mandatory” and incur a surcharge.
Bankers have privately criticised the proposals for not allowing for radically different balance sheets and business models and for using “1980s mathematics”.
PricewaterhouseCoopers’ Patrick Fell said: “This is a turn of the screw… Whether this will lead banks into a ‘back to basics’ move to traditional banking, as some regulators would prefer, is an open question.”