Senior bankers fear that efforts by regulators to create a one-size-fits-all calculation of risk-weighted assets are doomed to failure.
Supervisors around the world are looking at how banks rate the risk of different activities in an attempt to reduce differences in the risk weightings of similar assets. But market participants believe this ignores the fact that local regulations alter the risk profile of identical assets.
Adrian Docherty, head of financial institutions group advisory at BNP Paribas, said: “Take mortgages – when you ask what risk is a mortgage, that’s going to be very different from one jurisdiction to another. It’s very hard in some countries to foreclose, for example, while in others it’s much easier.”
The Basel I accord established unified risk weightings: corporates attracted a 100 per cent risk weighting, mortgages 50 per cent and banks from Organisation for Economic Co-operation and Development countries 20 per cent.
Basel II admitted subjective risk weightings, allowing banks to use their own internal risk models, but Docherty said regulators fear this is being misused by firms that are under-reporting their true risk.
Docherty said a unified measure would be retrogressive, lead to poorer standards of risk management and detract from banks’ ability to set their own standards on lending and other activities. He added that people concerned by headline disparities on risk often lacked the patience to conduct a detailed analysis to explain them.
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