Banks Face Basel Push to Prepare for Interest Rate Change

Banks are set to face tougher international rules on the capital they must have on hand to cope with a change in interest rates, amid regulators’ concerns that current standards may be too flimsy to fully capture the risks. The Basel Committee on Banking Supervision, a group bringing together regulators such as the U.S. Federal Reserve and the European Central Bank, proposed overhauling its current rules for interest-rate risk, including possible binding standards on how banks should measure their resilience to shock rate changes, and on the capital they should have to cover potential losses. “One reason interest-rate risk is so grave a concern now is that the combination of accommodative monetary policy and post-crisis regulation leads to large holdings of long-dated, low-rate obligations,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said by e-mail.