Constraints on banks’ internal models are needed to deter the “gaming” of capital requirements by dealers and to make risk-weighted asset (RWA) measures more comparable across the sector, the Bank for International Settlements (BIS) has argued.
The central banking organisation wrote in its annual economic report that RWA variability – the differences between risk weights and corresponding capital requirements among banks using internal models – could reflect “unwarranted factors”, such as the
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