Regulators should keep internal models

The Basel Committee on Banking Supervision is looking closely at the use of supervisor-approved internal models by banks, but the alternatives, such as a leverage ratio, are not a realistic option, argues Uwe Gaumert

Uwe Gaumert

A growing chorus of voices has been calling for a significant overhaul of the Basel capital framework over the past year. The current system, which allows banks to use their internal models to calculate regulatory capital requirements, is too complex, gives banks too much leeway to determine inputs, and generates outputs that cannot be compared from bank to bank, critics say.

These concerns appeared to be backed up by two recent reports from the Basel Committee on Banking Supervision, which

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