* Basel to discuss reforms to tighten risk calculations
* Little evidence European banks more lax than U.S. rivals
* Investor says continental European lenders face pressure
By Huw Jones
LONDON, July 5 Banks may have to hold yet more
capital after a study showed wide variations in how lenders
calculate risks on their books, global regulators said in their
latest bid to restore trust in the tarnished sector.
Though new rules demand that 7 percent of capital is set
aside as a protective cushion, a bank can inflate this health
benchmark by as much as 2 percentage points, depending on the
risk model used, the Basel Committee on Banking Supervision said
The committee made up of regulators from top financial
centres is to examine a number of options as a result of its
study of 100 unnamed banks, with extra data from the world's top
32 lenders on their sovereign, bank and corporate exposures.
"While some variation in risk weightings should be expected
with internal model-based approaches, the considerable variation
observed warrants further attention," Basel Committee Chairman
Stefan Ingves said.
The committee put forward several policy options, with quick
wins such as enhanced disclosure, extra guidance from
supervisors and possible clarification of existing rules.
Over the medium term, it will examine whether to put
restraints on the internal models used by banks.
Even tougher curbs could include fixed-value capital floors,
which banks would have to apply even if in-house models indicate
that the risk does not warrant holding as much capital.
Jamie Dimon, chief executive of U.S. bank JPMorgan,
was widely seen as attacking European rivals in 2011 when he
said some lenders were lax in how they calculated risk.
The Basel study shows no clear evidence that European banks
are generally more lax than U.S. rivals, though they appear to
be so in relation to their exposure to other banks.
"In the near term, information from this study on the
relative positions of banks is being used by national
supervisors and banks to take action to improve consistency,"
said Ingves, who is also governor of Sweden's central bank.
Basel's review of risk weightings on trading books came up
with similar variations at the start of the year and regulators
have said that investors will remain cautious about the sector's
stability until they have faith in the numbers used to determine
"There will be more willingness to actually interfere in the
risk-management processes. This means more oversight and,
ultimately, for some banks it means more capital," said Etay
Katz, a lawyer at Allen & Overy.
The two studies are expected to be viewed by regulators in
Britain and the United States as further evidence to back their
calls for speedy reform. They see the system of using risk
weightings to determine capital buffers as being overly complex
and are putting greater emphasis on a simpler curb on risk.
This week the Bank of England said that banks must comply
with a 3 percent leverage ratio immediately, four and a half
years ahead of the global deadline set by Basel.
The leverage ratio measures a bank's capital against its
total lending, in effect setting a straightforward cap on how
much it can lend against its reserves. This measure is
considered to be less easy to circumvent than risk-weighted
A 3 percent ratio means that a bank must hold capital
equivalent to 3 percent of its loan book.
The U.S. Federal Reserve said it will require banks to have
a leverage ratio higher than Basel's 3 percent minimum.
A tougher approach could raise political concerns in some
euro zone countries where debt is lowly rated or where lenders
are heavily exposed to each other.
"I think continental European investors may be nervous - and
perhaps they should be, as their risk-weighted assets are only
going to harmonise one way, and that is upwards," one UK
financials fund manager said on condition of anonymity.
"I don't have much faith in the numbers used to determine
capital buffers, but not because I think the banks are playing
games - I am nervous because the regulators keep moving the
The Basel Committee may discuss what action to take when it
meets in September.