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30 March 2015

Reuters: Banks call for rethink of global plans for capital "floors"

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The world's top banks and other market participants want regulators to rethink plans that would set a new minimum level of capital requirements even when risks from high quality loans are low.

Core capital buffers held by banks are determined by assessing the likelihood of a loan defaulting, but regulators have questioned such "risk-weighting" calculations after finding wide variations in capital to cover similar loans.

This prompted the global Basel Committee of banking supervisors to propose a capital "floor", below which a bank cannot go, whatever these internal risk calculcations say.

Four bank lobby groups said in a joint statement on Monday it was not clear that a new capital floor would meet the regulatory objective of greater simplicity and comparability.

There is a possibility that the plans could compromise the risk-sensitivity of the main capital framework, they said.

"A risk-sensitive framework is necessary to measure risk accurately and allocate capital accordingly. On the contrary, a lack of risk-sensitivity distorts lending practices as it incentivises banks to engage in higher return, but riskier business," the statement said.

"Ultimately, the cost could be a significantly reduced capacity for banks and capital markets to facilitate investment in the real economy and support economic growth."

The banking associations said regulators should first complete their planned "stocktaking" of new regulations introduced and already planned by Basel on behalf of the Group of 20 economies (G20) since the 2007-09 financial crisis.

A fresh round of public consultations on the capital floor plans would then be welcomed, they added.

Full article on Reuters

© Reuters

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