EU Bank Calculations of Capital Vary Widely, EBA Says
By Ben Moshinsky - Aug 5, 2013 9:00 AM ET
The European Union’s top banking regulator said it found inconsistencies in the way lenders calculate how much capital to hold on their balance sheets against potential losses, adding to the clamor from global supervisors to increase transparency.
Banks may face requirements to publish more information on how they calculate the risk of a borrower defaulting and how much they may lose as a result, the European Banking Authority said in a report today. The EBA, set up in 2011 to harmonize banking rules across the 28-member bloc, surveyed 35 banks from 13 member countries for the review and said it would publish additional information later this year.
“This is an important step in a series of exercises the EBA is conducting with the aim of ensuring consistency in the calculation of risk-weighted assets across the EU,” Andrea Enria, chairman of the EBA, said in a statement.
Concerns about banks’ ability to reduce their capital requirements by changing how they measure the risk of losses on their assets have prompted investigations by regulators and calls from some supervisors for more reliance on simpler, non-risk-sensitive capital rules, known as leverage ratios.
Last month, the Basel Committee on Banking Supervision, a group that brings together global banking regulators, said that a study of 32 global banks had found “material” differences in how much capital lenders thought was needed to guard against possible losses on assets such as corporate and household debt. The variations meant that some lenders were backing investments with as much as 20 percent more capital than other banks, the group said.
Information that is currently public is “insufficient to allow investors and other interested parties to assess how much of the variation reflects differing levels of actual risk,” the Basel committee said in a report earlier this year.
U.S. bankers including Jamie Dimon, chief executive officer of JPMorgan Chase & Co., have said that flexible implementation of previous versions of Basel capital rules in the EU has allowed European lenders to hold less capital against some assets than their U.S. counterparts.
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