Trusting Banks’ Own Capital Models Can Be Dangerous

American Banker
November 11, 2015

I am very pleased that Basel Committee Chairman Stevan Ingves announced recently the committee will propose new limits on banks’ discretion to use internal models to assess capital strength.

As I have written extensively, large banks — typically with more than $250 billion in assets — are allowed by national regulators to create opaque credit, market and operational risk models that hide assumptions and inputs from most people at the bank, not to mention market participants. The success of these models is critical in determining the right amount of regulatory capital to sustain losses…Read More

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