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Thursday, November 13, 2014

Basel Committee Worried about Variability in Risk Weight Calculations

The Basel Committee on Banking Supervision expressed concern that there is too much variability in how banks risk-weight assets as part of their regulatory capital requirements -- which “undermine[s] confidence in capital ratios,” the committee said in a report issued in advance of the Group of 20 leaders’ meeting in Brisbane, Australia, this week.

The committee said it is responding by developing proposals to better standardize the calculations, reviewing how the leverage ratio is calculated, revising modeling practices and conducting hypothetical portfolio exercises.

Basel’s proposal on disclosures of risk-weighting -- issued in June 2014 -- will also contribute to consistency the committee said, by “enabl[ing] market participants to compare banks’ disclosures of their risk-weighted assets and to assess more effectively a bank’s overall capital adequacy.” The committee added that it expects to finalize the disclosure framework by year’s end.

Read the report.

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