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Time to review the risk weights of assets: ECB Official 

October 13, 2015

Holly Ellyatt and Geoff Cutmore, CNBC

Global assessment of the banking sector could have been on the wrong track, a member of the European Central Bank's (ECB) governing council has told CNBC.

Speaking to CNBC in Lima where the International Monetary Fund and World Bank was holding its annual meeting, Erkki Liikanen, who is also governor of the Bank of Finland, said that asset quality reviews of banks' books last year could have weighted the risks of those assets incorrectly.

"When we assessed the capital requirements (of banks) on the basis of risk-weighted assets, (we saw that) housing has very low risk-weights but small and SMEs have very high risk weights."

"But if we look at our experience of the crisis, housing has been the biggest source of problems -- so perhaps there is something wrong there. You should be able to diversify risks if you have many SMEs that you finance, but with housing you have to be careful, because bubbles are very heavy because they have a deep impact on a whole population," he said.

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