Economics
Banks' Leeway on Credit Risk Narrows as Basel Tightens Rules
- Regulator aims to finish post-crisis risk reforms this year
- Banks deny seeking to game capital requirements with models
This article is for subscribers only.
Banks’ latitude in assessing their biggest source of risk is set to be curtailed as global regulators try to prevent the financial industry from gaming capital requirements.
The Basel Committee on Banking Supervision proposed on Thursday to remove the option for lenders to use their own models to determine how much capital they need to fund exposures to financial firms, equities and large corporations, forcing them to use a standardized method set by the regulator. The plan also envisions a floor to limit how far risk assessments using the models still allowed for assets such as mortgages and small-business loans can diverge from those obtained with the standardized approach.