Basel watchdog to probe how banks measure assets

FRANKFURT Tue Sep 20, 2011 9:25am EDT

FRANKFURT (Reuters) - 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 (DBKGn.DE) was expected to be on the list, and also possibly Commerzbank (CBKG.DE).

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)

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Comments (1)
PerKurowski wrote:
It looks like the Basel Committee is beginning to understand the horrible dimension of its mistakes, but, what an amazing lack of fortitude! …now it wants to blame the banks… without referencing their own madness when determining the risk-weights of Basel II and how these are used.

Basel Committee, you tell us! You who determined that capital requirements for banks when lending to a triple-A rated sovereign should be zero, and to sovereigns like Greece only 1.6 percent; you who assigned a risk-weight of only 20 percent for anything else related to a triple-A rating and therefore allowed the banks to have only 1.6 percent in capital and leverage up 62.5 to 1 when investing in securities collateralized with lousy awarded mortgages to the subprime sector …. How do you think banks should determine risk-weighted assets under existing rules?

You should not need a study for that… just ask yourselves! For heaven´s sake, you are the regulators!

Sep 21, 2011 9:20am EDT  --  Report as abuse
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