BOE Signals Skepticism Over U.K. Lenders’ Risk Modeling

Banks may be banned from using their own risk models to calculate capital requirements if regulators consider them too optimistic, the Bank of England said.

The supervisor needs to have a “credible capacity” to withdraw a risk model if it’s seen as “inadequate” or the bank “has not demonstrated the capacity to use it safely,” Andrew Bailey, chief executive officer of the central bank’s Prudential Regulation Authority unit, told bank executives in a speech at Bloomberg L.P.’s London headquarters today. The regulator already used its power to pull “permission for whole types of models,” focusing on commercial property assets, he said.