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Banks Face Basel Clampdown on Risk-Model Variation 

October 10, 2014
Boris Groendahl, Rebecca Christie, Bloomberg

Global regulators are preparing to narrow banks’ options for assessing credit risk in a bid to prevent the understatement of possible losses.

The Basel Committee on Banking Supervision will publish a report by early November on “excessive” variability in the models banks use to assign risk and measure capital needs, Secretary General Bill Coen said in an interview at the regulator’s headquarters in Basel, Switzerland. The document has been prepared for the Group of 20 nations.

The report “will include things like a non-risk-based leverage ratio and the introduction of floors or benchmarks, which is requiring banks to publish what its capital requirement would be if they used the simpler standardized, non-model based approaches,” Coen said.

Some global banks have improved their capital ratios since the financial crisis in part by understating the riskiness of their assets, a practice the Bank for International Settlements, which contains the Basel committee, has compared to “window dressing.”

Read more: Bloomberg

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