Report on the regulatory consistency of risk-weighted assets in the banking book issued by the Basel Committee
BCBS, Jul 5, 2013
The Basel Committee on Banking Supervision has today published its first report on the regulatory consistency of risk-weighted assets (RWAs) for credit risk in the banking book. This study is a part of its wider Regulatory Consistency Assessment Programme (RCAP),
which is intended to ensure consistent implementation of the Basel III
framework. The study draws on supervisory data from more than 100 major
banks, as well as additional data on sovereign, bank and corporate
exposures collected from 32 major international banks as part of a
portfolio benchmarking exercise.
There is considerable variation across banks in average RWAs for
credit risk in the banking book. The study published today finds that
most of the variation in RWAs can be explained by broad differences in
the composition of banks' assets, reflecting differences in risk
preferences as intended under the risk-based capital framework. However,
there is also material variation driven by diversity in bank and
Through a portfolio benchmarking exercise, the study found a high
degree of consistency in banks' assessment of the relative riskiness of
obligors. That is, there was a high correlation in how banks rank a
portfolio of individual borrowers. Differences exist, however, in the
levels of estimated risk, as expressed in probability of default (PD)
and loss-given-default (LGD), that banks assign. These differences drive
the variation in risk weights attributable to individual bank
practices, and could result in the reported capital ratios for some
outlier banks varying by as much as 2 percentage points from a 10%
risk-based capital ratio benchmark (or 20% in relative terms) in either
direction, although the capital ratios for most banks fall within a
Notable outliers are evident in each asset class, with the corporate
asset class showing the tightest clustering of banks around a central
tendency, and the sovereign asset class showing the greatest variation.
The low-default nature of the benchmark portfolios and the consequent
challenges in obtaining appropriate data for risk estimation may be one
factor contributing to differences across banks, especially for banks'
estimates of LGDs in the sovereign and bank asset classes.
The report also includes a preliminary discussion of potential
policy options that the Committee could pursue in seeking to minimise
excessive practice-based variations. The Committee is conscious of the
need to ensure that the capital framework retains its risk sensitivity,
while at the same time promoting improved comparability of regulatory
capital calculations by banks.
Commenting on the report, Stefan Ingves, Chairman of the Basel
Committee and Governor of Sveriges Riksbank, said: "While some variation
in risk weightings should be expected with internal model-based
approaches, the considerable variation observed warrants further
attention. In the near term, information from this study on the relative
positions of banks is being used by national supervisors and banks to
take action to improve consistency. In addition, the Committee is using
the results as part of its ongoing work to improve the comparability of
the regulatory capital ratios and to enhance bank disclosures. The
Committee will be considering similar exercises to monitor consistency
in capital outcomes and assess improvement over time."