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Banks Should Give More Data on Basel, Stress Tests, FSB Says

Banks should increase the data they disclose to investors on how well they measure up to Basel capital rules and on their performance in internal stress tests, according to global regulators.

Supervisors at the Financial Stability Board also called for lenders to disclose all off-balance sheet commitments, as part of a push to curb banks’ risk taking.

“Rebuilding investors’ confidence and trust in the banking industry is vital to the future health of the financial system,” an FSB task force said in an e-mailed statement yesterday. Better disclosure by banks of the risks they are running “is an important step in achieving that goal.”

The European Union and U.S. are struggling to meet a January deadline to implement updated bank capital and liquidity rules. The measures, known as Basel III, are intended to prevent a repeat of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. The standards will more than triple the core capital that lenders must have to absorb losses.

Regulators have warned that banks avoided the full force of earlier Basel standards by using complex accounting procedures and off-balance sheet entities.

Lenders should “outline plans” to meet the new Basel rules, and explain the models they use to measure their capital requirements, according to the report.

Other data requirements concern the collateral held against derivatives trades, and whether such transactions have passed through clearinghouses.

On stress tests, lenders should set out their internal procedures for running the exams, and explain the role they play in assessing capital needs.

The FSB brings together regulators, central bankers, and finance ministry officials from the Group of 20 nations.

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