GFMA rejects Basel internal risk model rules
31 March 2016 Washington DC
Image: Shutterstock
The Basel Committee of Banking Supervision (BCBS) proposal to restrict banks鈥� usage of internal risk models for determining credit risk is unnecessary and counterintuitive, the Global Financial Markets Association has said.
In a statement, Kenneth Bentsen, CEO of GFMA, said that the proposed measures would be 鈥渦nnecessary at best鈥�, and that they could represent a divergence from the BCBS鈥檚 originally stated objective not to increase capital requirements.
The new measures would restrict banks鈥� ability to use their own internal models for calculating credit risk for the purpose of determining regulatory capital requirements.
Bentsen went on to say that this is also at odds with statements from the Financial Stability Board, which suggested there would not be a new wave of capital requirements regulation.
The paper released by BCBS give the impression that decisions have already been made, Bentsen said, which would 鈥渄o away with the risk sensitivity of the international regulatory framework for credit risk鈥�.
He said: 鈥淭he outcome of this approach to reduce risk sensitivity is that regulatory designed models would override objective risk assessments and the consequent pricing for end-users.鈥�
He went on to say: 鈥淭his proposal represents a step towards regulatory policy that overestimates economic risk with consequences for growth and financial stability. A fundamental rethink is required in order to support vibrant economies where risk is identified and assumed, without recourse to taxpayers.鈥�
The GFMA will now review the proposal with its members and will submit more substantial comments at a later date.
In a statement, Kenneth Bentsen, CEO of GFMA, said that the proposed measures would be 鈥渦nnecessary at best鈥�, and that they could represent a divergence from the BCBS鈥檚 originally stated objective not to increase capital requirements.
The new measures would restrict banks鈥� ability to use their own internal models for calculating credit risk for the purpose of determining regulatory capital requirements.
Bentsen went on to say that this is also at odds with statements from the Financial Stability Board, which suggested there would not be a new wave of capital requirements regulation.
The paper released by BCBS give the impression that decisions have already been made, Bentsen said, which would 鈥渄o away with the risk sensitivity of the international regulatory framework for credit risk鈥�.
He said: 鈥淭he outcome of this approach to reduce risk sensitivity is that regulatory designed models would override objective risk assessments and the consequent pricing for end-users.鈥�
He went on to say: 鈥淭his proposal represents a step towards regulatory policy that overestimates economic risk with consequences for growth and financial stability. A fundamental rethink is required in order to support vibrant economies where risk is identified and assumed, without recourse to taxpayers.鈥�
The GFMA will now review the proposal with its members and will submit more substantial comments at a later date.
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