GFMA Statement on Basel Proposal to Restrain Banks' Use of Internal Risk Models

Release Date: 25 March 2016    

GFMA Statement on Basel Proposal to Restrain Banks’ Use of Internal Risk Models

WASHINGTON, 25 March 2016 – The Global Financial Markets Association (GFMA) today issued the following statement from Kenneth E. Bentsen, Jr., chief executive officer, after the Basel Committee on Banking Supervision (BCBS) proposed new restraints on banks’ ability to use internal models to calculate credit risk for the purpose of determining their regulatory capital requirements:

 “Upon first review, we are concerned that the BCBS proposal to restrain banks’ use of internal models to calculate credit risk is unnecessary at best, could be a divergence from the BCBS’s stated objective not to significantly increase capital requirements, and may be at odds with recent statements from the Financial Stability Board that there will not be a new wave of additional capital requirements that would be tantamount to a ‘Basel IV’ regulatory package. 

“The BCBS paper conveys the impression that decisions have already been made to do away with the risk sensitivity of the international regulatory framework for credit risk. The outcome of this approach to reduce risk sensitivity is that regulatory designed models would override objective risk assessments and the consequent pricing for end-users.

“In our view, this proposal represents a step towards regulatory policy that overestimates economic risk with consequences for growth and financial stability. A fundamental rethink is required in order to support vibrant economies where risk is identified and assumed, without recourse to taxpayers. We will review the proposal in detail with our members and provide more substantive comments in due course.”

-ENDS-

Contact: Liz Pierce                                                         +1 (212) 313-1173,  lpierce@gfma.org 

The Global Financial Markets Association (GFMA) brings together three of the world’s leading financial trade associations to address the increasingly important global regulatory agenda and to promote coordinated advocacy efforts. The Association for Financial Markets in Europe (AFME) in London and Brussels, the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington are, respectively, the European, Asian and North American members of GFMA. For more information, visit http://www.gfma.org.

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