For Largest Banks, Basel Proposes Changes to Capital Risk Weights

The Basel Committee on Banking Supervision today released a proposed framework that would limit some of the flexibility that the largest banks have in calculating risk weights for certain kinds of assets. The framework — after it is finalized by the Basel Committee and formally implemented in the United States — would apply only to banks using advanced approaches under Basel III. It is intended to simplify the capital framework and address “excessive variability” in risk-weighted assets across banks.

The committee said that not all credit risk exposures can be reliably modeled for use in setting capital requirements. As a result, the committee is proposing to remove the internal ratings-based approaches for assets issued by banks, large corporations with assets exceeding €50 billion and equities.

In a speech last fall, Basel Committee Chairman Stefan Ingves signaled this proposal, noting that Basel is seeking a more “appropriate balance between simplicity, comparability and risk sensitivity.” Comments on the proposed framework are due by June 24. For more information, contact ABA’s Hugh Carney.

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Evan Sparks

Evan Sparks is editor-in-chief of the ABA Banking Journal and vice president for publications at the American Bankers Association.