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July 9, 2013

Basel committee willing to rethink complex bank rules

Global banking regulators have signalled they are open to rethinking their framework for keeping big financial systems safe.

The Basel Committee on Banking Supervision said in a discussion paper released on Monday that it shares the concern of critics who believe the main measure of bank safety – the core tier one capital ratio – is too complicated and makes it difficult to compare banks.

Its own research shows banks are using wildly different models to calculate the risk-weighted assets that make up the denominator of the ratio, resulting in some institutions holding 40 per cent less capital against the same kinds of banking assets as their peers.

The Basel group, which represents 27 banking centres, said it would consider a variety of improvements such as removing the ability of banks to use their own models and limiting national discretion. The group said it would also consider adding metrics or scrapping the ratio entirely in favour of something else, such as a ratio of tangible equity to tangible assets, or a non-risk weighted capital ratio plus a second ratio that uses standardised risk weights.”


Read full Financial Times article here

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