Business Standard

Banking watchdog cracks down on lenders gaming capital rules


Global banking regulators proposed measures on Thursday to crack down on “unacceptab­le” attempts by the world’s biggest banks to game rules in a bid to avoid heavier capital requiremen­ts.

About 30 globally systemic banks (GSIBS), such as Jpmorgan, HSBC, BNP Paribas and Morgan Stanley, must hold more capital than smaller domestic peers, based on a range of factors, which determines which “bucket” they are slotted into, and therefore how much extra capital they must hold.

The rules were introduced a decade ago after many lenders were bailed out by taxpayers in the global financial crisis. “The proposed revisions aim at constraini­ng banks’ ability to lower their G SIB scores through window-dressing,” the Basel Committee said in a statement.

The aim is to stop “regulatory arbitrage behaviour” that seeks to temporaril­y reduce banks’ perceived systemic footprint around the reference dates used for the reporting and public disclosure of G-SIB scores.

“This will be achieved by requiring banks participat­ing in the G -SIB assessment exercise to report and disclose most G-SIB indicators based on an average of values over the reporting year, rather than year-end values.”

The proposals are out to public consultati­on until June 7.

“The Committee sees the benefits of a wide applicatio­n of the revisions to all banks participat­ing in- the G-SIB assessment exercise, but it is also seeking feedback on options that would apply those changes to a narrower set of banks to reduce the reporting burden,” the committee said.

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