Credible capital: regulators prepare to tackle RWA divergence

The credibility of bank capital has been called into question by the wildly differing risk-weighted asset (RWA) numbers produced by bank models – and the Basel Committee is preparing to launch an investigation. But RWA differences spring from multiple sources – many of them legitimate, banks argue. Michael Watt reports

When risk managers at DNB Nor in Oslo were poring over disclosures made by another Nordic bank early last year, they spotted something odd. The second bank, a rival in northern European shipping finance, was claiming the risk of the borrowers in its portfolio was far lower than that of DNB Nor’s customers – even though the two banks are thought to have near-identical books of business.

That upset DNB Nor enough for it to raise the issue in a May 2011 response to the Norwegian government’s green