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New Measures To Lift The Veil On Banks' Capital Ratios

Sunday, February 3, 2013 - 11:44 AM
From Reuters via Yahoo Finance:
The game may soon be up for banks that have made themselves look healthier by understating how risky their businesses are, which should help pension funds, savers and companies to decide which institutions to invest in.

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.

[...]  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.
 

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