Japanese regulator defends risk-based capital rules

Shirakawa warns binding leverage ratio could harm banks' risk management practices

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Shunsuke Shirakawa: "If we rely too much on such a non-risk capital framework, that is not suitable for the incentives of the improvement of risk management"

A senior official at Japan's Financial Services Agency (FSA) has warned an overreliance on the leverage ratio, rather than risk-based rules, could diminish Japanese banks' internal risk management processes.

"Of course, the leverage ratio may be necessary in order to prevent excessive risk taking or excessive asset increases by the financial institutions. However, if we rely too much on such a non-risk capital framework, that is not suitable for the incentives of the improvement of risk

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