Basel watchdog to probe how banks measure assets
The Basel Committee of international banking regulators is to launch a study into how banks measure assets for meeting capital safety rules.
This is going to be one of our more intrusive reviews from an historical perspective, Stefan Walter, secretary general of the Basel Committee on Banking Supervision, told a conference on Tuesday.
The study, to be launched at a Basel Committee meeting next week and carried out in 2012, will focus on how banks determine risk-weighted assets under existing rules, not on whether the regime itself should change.
The primary areas are the trading book and the banking book internal ratings-based approaches, which rely on banks' internal estimates and supervisory evaluations of them, Walter said.
If risk-weighted assets are not calculated in the correct way then the integrity of the (capital rules) is compromised, he said.
International regulators, who have developed new rules for banks designed to avoid a repeat of the recent crisis, have focused on boosting the amount and quality of capital banks must maintain as a safeguard against financial setbacks.
But that capital is measured as a percentage of a bank's assets, weighted by risk associated with those assets, and many observers have said banks were not measuring assets in a comparable way.
The measurements could potentially distort competition among banks and give outsiders a false understanding of a bank's relative safety.
Walter also said regulators were likely to reveal the names of an expected 28 banks considered so important to the world financial network they merit extra regulatory scrutiny and who will be subject to an additional capital surcharge beyond that required for banks in general.
I expect we will be disclosing by the end of the year who they are, Walter said.
Regulators have proposed that these 28 systemically important financial institutions (SIFIs) should hold an extra 1.0-2.5 percentage points of capital under the surcharge, to reduce the probability any of the banks fail.
In Germany, Deutsche Bank
Efforts to make the banking system more resilient to shocks have come under fire from some in the banking sector, who say the costs of the new rules could force lenders to reduce the quantity or raise the price of loans, hurting economies struggling with low growth and high unemployment.
Walter declined to comment on whether the proposed surcharge was likely to be changed by banking supervisors or the political leaders of the G20 group of emerging and developed economies, who were expected to make a final decision in November.
Walter was due to leave his job at the end of October. His successor has not been named.
(Reporting by Jonathan Gould; Editing by Dan Lalor)