Basel Committee proposes limits on discretion institutions have to measure how much risk they can take
By Donna Borak in Washington and Margot Patrick in London
Global regulators moved to further tighten the reins on banks, proposing limits on the discretion institutions have to measure how much risk they can take. The compromise plan reached Thursday by the Basel Committee on Banking Supervision wouldn’t allow banks to calculate their own credit risk from exposure to other banks, large corporations and stocks. Policy makers argue that individual assessments often deliver varied results among institutions because the models are different. By applying a standardized approach, regulators will have the ability to set a stricter framework based on their own expectations of default and calculations of potential losses. “It is a clear indication that Basel has renounced models other than for favored asset classes, like mortgages, where they want to give banks leeway to support social and economic policy goals,” said Karen Shaw Petrou, a managing director of advisory firm Federal Financial Analytics Inc.