Three months after revealing that banks were using wildly different models to measure risk in their trading books, the Basel Committee on Banking Supervision has signaled that it looking for similar issues in the banking book.
In a report to the Financial Stability Board, the committee said it was looking at data from 100 banks in 15 jurisdictions to see how and why they assigned different risk-weights to their portfolios. Read more
Outgoing Financial Services Authority chief executive Hector Sants said last week that he thinks that the Bank of England governor will have too much to do under the government’s current regulatory reform plan, but he believes the problem can be solved by passing some of his specific duties to other people.
Mr Sants, who was slated to become a BofE deputy governor next year until he decided to resign instead, said he broadly agrees with the coalition’s plan, which creates a new stability regulator — the Financial Policy Committee — within the bank and gives supervision of banks and insurers for safety and soundness to the Prudential Regulation Authority, another new arm of the BofE . The governor will chair the FPC, the PRA and the Monetary Policy Committee. Read more
Retired LSE professor Charles Goodhart makes a strong case in today’s FT about the systemic risks posed by bail-in bonds and contingent capital (cocos) — debt that converts to equity when a bank is in or near crisis.
But he may be overstating the case when he argues that the Basel Committee on Banking Supervision and the Financial Stability Board have become too enamoured of these cocos and should be forcing banks to raise more equity instead.
In fact, the BCBS did exactly what Mr Goodhart would have wanted when they met last month to determine how to make the world’s largest banks, known as Global systemically important financial institutions (G-sifis), more resilient and safer. The regulators and central bankers agreed that 25-30 institutions would have to carry extra capital — ranging from 1 to 2.5 per cent of their assets, adjusted for risk — on top of the global minimum of 7 per cent set for all banks last year. Read more