Bloomberg News

Banks Chided by Basel Group Over Trading-Book Capital Disclosure

January 31, 2013

Global regulators criticized the way banks disclose how they calculate the amount of capital to hold against trading assets, finding “substantial variations” in the lenders’ risk assessments.

The quality of public information is “insufficient to allow investors and other interested parties to assess how much of the variation reflects differing levels of actual risk and how much is a result of other factors,” the Basel Committee on Banking Supervision said in a report on its website today.

U.S. bankers, including Jamie Dimon, chief executive officer of JPMorgan Chase & Co. (JPM:US), have said that flexible implementation of previous rounds of Basel capital rules in the European Union has allowed European lenders to hold less capital against some assets than their U.S. counterparts. The U.K.’s Financial Services Authority is reviewing banks’ so-called risk weighted assets for a report to be published as early as March.

Banks applied their own risk calculations for between 10 percent and 80 percent of their total trading assets, according to the Basel review, which cited data from the end of 2011. Calculations could differ depending on the use of hedging strategies, decisions by national regulators and the types of risk models banks use, the Basel group said.

Financial firms with a greater appetite for trading risk are meant to apply a higher capital ratio, the committee said in the report.

The Basel committee brings together regulators from 27 nations, including the U.K., U.S. and China, to set capital rules for banks. The requirements it sets are measured as a percentage of lenders’ risk-weighted assets. The latest round, known as Basel III, states that banks should have core reserves equivalent to 7 percent of their RWAs.

Regulators could respond with tougher disclosure rules or “limitations in the modelling choices for banks,” Stefan Ingves, chairman of the Basel committee, said in a speech in Cape Town last week.

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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