Basel Committee on Banking Supervision

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. 

Claire Jones

Regulators on both sides of the Atlantic are calling on banks to strengthen their capital buffers by lowering dividends.

Britain’s Financial Policy Committee yesterday suggested as much. Today, Eric Rosengren, the president of the Federal Reserve Bank of Boston, was more explicit.

Mr Rosengren’s approach is also more interventionist. 

Claire Jones

Officials must do more to ensure no firm is too big to fail. So says the Basel Committee on Banking Supervision in its report on the progress made by its 27 members in introducing frameworks to resolve ailing banks.

Many of the 27 have made progress in granting powers to save local lenders. But for firms with operations around the globe, the problems are “largely unresolved”. Progress on burden-sharing between states remains “at a preliminary stage”.

No wonder. As Bill Dudley, the president of the Federal Reserve Bank of New York, has said, the bulk of regulation and financial information is contained within national boundaries. And these boundaries, Dudley believes, are formidable obstacles to overcome. 

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. 

Claire Jones

The blueprint for Basel III is more than a year old. And there is consensus on its fundamental tenets – to hold more and better quality capital, for liquidity requirements, leverage ratios, and countercyclical buffers.

Yet the devil is in the detail. There remains disagreement on the calibration of countercyclical buffers, not to mention what form the leverage ratio and liquidity buffers should take.

So Sunday’s appointment of Riksbank governor Stefan Ingves to chair the Basel Committee is significant.