European Banking Authority Warns about Variations in Risk Calculations

Regulatory action may be needed to end variations in the ways banks add up the risks on their books to determine how big their capital buffers should be, the European Banking Authority said.

As regulators put in place tougher capital requirements, known as Basel III, following the 2007-09 financial crisis, they want to be sure calculations used by banks to meet them are sound.

Faith in figures that banks publish is seen as core to restoring investor and public trust in the financial sector.

The EBA released interim results on Tuesday of its probe into risk-weighted assets on the main banking books of 89 banks, which it did not name, from 16 European Union countries.

It found material differences between banks, with half caused by different regulatory approaches and the structure of a bank’s loan portfolio, and the other half because of the way banks calibrated in-house financial models for adding up risks.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza