New measures set to lift veil on banks camouflaging capital ratios

Bowing to pressure from regulators and investors, some of the world's biggest banks will soon implement a landmark initiative that promises to reveal far more detail on how banks calculate how much capital they need to guard against potential future losses.

It's designed to restore faith in the capital ratios that are the global benchmark for banks' financial health, ratios that are highly sensitive to banks' risk judgments since they are determined as a percentage of banks' own measure of assets as weighted by risk.

“We're expecting a lot of good disclosure from the banks, and where it's not happening we're expecting institutional investors to challenge management on why they're not doing so,” said Russell Picot, chief accounting officer at bank HSBC and co-chair of the industry taskforce that came up with the new standards for what banks should tell investors.

The initiative was instigated by global financial rules setter the Financial Stability Board (FSB).

A study by the Basel Committee last week showed precisely why it is necessary, revealing that the most aggressive banks assign just one eighth of the risk weighting applied by their most conservative competitors, making their capital position appear far more robust.

Deutsche Bank came under fire on Thursday when it told investors that it managed a better-than-expected improvement to its capital ratio in the fourth quarter, despite losing 2.5 billion euros (US$3.4 billion), largely by changing its approach to risk-weighted assets (RWAs).

1|2|Next Page>>

SHARE CLOSE
Blogger		Google+
Live Journal		Plurk
Stumble Upon

Tweet

	PREVIOUS ARTICLE
	UK banks face breakup if fail to ring-fence: finance minister

NEXT ARTICLE
Spain's jobless just short of 5 million in January

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

 Receive China Post promos
 Respond to this email

Submit