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Industry groups respond to Basel consultation on internal risk models

Industry groups respond to Basel consultation on internal risk models

first_img Share this article and your comments with peers on social media Related news James Langton Basel revisions could lead to bank restructuring: report A collection of industry trade groups on Wednesday pushed back against efforts by the Basel Committee on Banking Supervision to reduce variation in the banks’ calculation of risk-weighted assets (RWAs), warning that this may end up harming financing activity, and ultimately, economic growth. The Global Financial Markets Association, the International Swaps and Derivatives Association, Inc., the International Association of Credit Portfolio Managers, and the Japan Financial Markets Council argue proposed changes to the Basel III capital adequacy regime designed to constrain banks’ use of internal models as a way of reducing variation in their calculations of RWAs “would distort capital allocation decisions and pricing to the detriment of banks’ customers and the global economy.” OSFI relaxes capital, liquidity requirementscenter_img In particular, the industry groups say that corporate lending, capital markets activity, project finance, along with aircraft, shipping, and commodities finance, would be impacted by the proposals. And economies where market financing is still developing “would also be likely to feel these effects more acutely,” the groups warn in a statement. The latest proposals from the Basel Committee are “leading to increased risk-weighted-asset levels, with decreasing marginal benefits for society,” the statement adds. The groups also argue that there are alternative ways for the regulators to reduce variation without restricting internal modeling to the extent that is being proposed. “This is particularly true as major investments on the part of both industry and the regulatory community are under way to reduce unwarranted differences in modelled outcomes,” the statement says. “These efforts should be allowed to take effect before fundamental changes are introduced.” Overall, the proposals “are more likely to increase the complexity of the capital framework and reduce comparability between firms,” the statement says. OSFI unwinds emergency pandemic relief measures Keywords Basel Capital Accord Facebook LinkedIn Twitterlast_img read more