(Corrects RWA reduction figure in para 18 To 55 bln euros from
47 billion euros)
* Basel to test bank risk-weightings again
* Banks could face curbs on use of in-house risk models
* Deutsche Bank defends "optimised" risk weightings
By Huw Jones
LONDON, Jan 31 Global regulators will review how
their rules are used by banks to determine the size of capital
buffers after an initial probe showed variations big enough to
The world's biggest banks use their own models to tot up
risks, sparking calls from British and U.S. regulators for a
simpler system that does not rely on lenders' own arithmetic.
Last November, the Bank of England called on UK regulators
to take action, arguing banks' capital positions could be
overstated by not adjusting the value of assets properly to take
into account risk, making it harder to restore investor
confidence in the sector.
The Basel Committee, made up of regulators from nearly 30
countries, on Thursday published its study of how 16 top banks
use its rules to add up risks on trading books. It revealed some
of the main findings last week.
Basel said it found considerable variations, and the
explanations from banks were of insufficient quality for
investors to make informed assessments.
The ratio of market risk-weighted assets to total trading
assets, seen as an average risk weight, ranged from a low of 10
percent at BNP Paribas to 80 percent at UniCredit.
Faced with such a range and pressure from U.S. and British
regulators for simpler rules, the committee said it would now
carry out a further test and consider rule changes.
"This will include other, more complex, hypothetical test
portfolios, with the aim of helping the committee to deepen its
analysis of the variation in risk measurement of trading books
across banks," the committee said in a statement.
A sizeable portion of the differences were due to some
national supervisors being tougher and limiting modelling
Basel said the way banks set in-house models lay behind some
of the variations in risk weightings uncovered by its study.
The committee was already testing the use of risk weights in
Reforms could include curbs on model choices, requiring
better public disclosure on models, and more harmonisation of
Some policymakers want more radical changes, but these could
come after Basel's fundamental review of bank trading books is
completed over the next year or so.
A Bank of Italy paper last year described Basel's
risk-weighting system as a labyrinth and offered advice on how
not to get lost.
The Bank of England says the rules are complex and opaque,
and differences in how banks add up risks have also sparked
complaints among the lenders themselves.
JPMorgan Chief Executive Jamie Dimon complained in
2011 that rivals were gaming the system by attaching
aggressively low risk weights to assets, in comments thought to
refer to European lenders.
Deutsche Bank's chief financial officer Stefan
Krause on Thursday mounted a staunch defence of how his bank
"optimised" risk weightings, adding that he understood the
concern over the lack of transparency regarding the models.
A 55 billion euro ($74.7 billion) reduction in risk-weighted
assets in the last quarter helped the bank report a better than
expected core tier one capital ratio of 8.0 percent - and put
off having to raise expensive capital.
"We will see these tests coming in terms of our RWA
comparability and I can tell you that we are very comfortable
with the results," Krause told a conference call, adding that
only a quarter of Deutsche's reduction was due to model changes.
Basel's study showed Deutsche's market risk-weighted assets
at the end of 2011 were mid-range at just over 30 percent
Espirito Santo analyst Andrew Lim said on Thursday the
bank's model tweaks would be viewed by markets as "low quality".
($1 = 0.7367 euros)
(Additional reporting by Steve Slater and Laura Noonan; Editing
by Helen Massy-Beresford)