Stung by criticism that its rules create undue complexity and potential unintended consequences, the Basel Committee is considering numerous changes – including a fundamental reorientation – designed to make its capital requirements – but not apparently its many other requirements – more simple and comparable. It has, however, not agreed with those who believe the best way to achieve this goal is to scrap risk-based capital (RBC) standards in favor of simple leverage rules. Instead, perhaps holding firm to the standards as now finalized, it has nevertheless solicited views on how to maintain them, yet still advance more simplicity and comparability. Several of these options could shed more light on complex banking organizations – i.e., through increased disclosures – but perhaps not lead to the simplicity and comparability Basel now contemplates because of the complexity inherent in possible options to current approaches. Several of the proposed reforms are fundamental departures from current practice that, while generally retaining risk-based capital, would add new requirements (e.g., additional mandatory capital charges), make public information that is now proprietary such as internal-model performance, and/or alter the overall focus of regulatory-capital regulation to encompass additional policy objectives.
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