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Japanese regulator says banks should keep role in determining lending risks 

May 11, 2016

Huw Jones, Reuters

A move by banking regulators to curb the ability of banks to assess for themselves their lending risks could backfire if as a result they lose the incentive to reduce those risks in order to cut the amount of capital they must hold as a buffer against possible defaults, a senior Japanese regulator said on Monday.

The Basel Committee of banking supervisors from nearly 30 countries is adding the finishing touches to the new rules on capital requirements introduced after the financial crisis.

This includes restrictions on the models big banks use to calculate the total amount of risky lending they hold on their books in order to determine how much core equity capital they need to hold to survive another financial crisis.

Banks say this could make lending harder as it would amount to a higher "Basel IV" capital requirement compared with the demands made under the Basel III accord introduced after the 2007-2009 crisis.

Shunsuke Shirakawa, deputy commissioner for international affairs at Japan's Financial Services Agency, said forcing lenders to use standard methods for totting up their risks could sacrifice banks' incentives to improve risk management. Read more

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