Basel Committee to review risk rules
(25 February 2008 – Global) The Basel Committee has indicated in a recently released paper that it will intensify demands for stress tests for banks to combat high risk situations.
The committee said that many banks had resisted efforts to improve stress testing that could have prevented some of the fall-out from the credit crisis.
The demands for scenario testing under difficult situations will be recommended in an upcoming guide that plans to set the standards for banking supervisors worldwide.
The Basel Committee, which groups the world's leading banking supervisors, said that poor planning and short-sighted risk assessments by banks exacerbated the current global credit crisis.
It also says that economic supervisors noted that they had faced considerable industry resistance in advance of the recent episode when they had tried to encourage more rigorous and comprehensive stress testing.
The report looks at what specific risks there were that banks failed to notice. In particular, contingencies were not analysed when banks offered capital and liquidity support to affiliated investment vehicles on reputational grounds.
As a result, the Basel Committee will focus on quantifying the full range of liquidity risks that lay in wait for the financial sector.
The committee also aims to examine the way leading national supervisors such as the US Federal Reserve or Germany's Bafin communicate with banks and with each other.
The demands for scenario testing under difficult situations will be recommended in an upcoming guide that plans to set the standards for banking supervisors worldwide.
The Basel Committee, which groups the world's leading banking supervisors, said that poor planning and short-sighted risk assessments by banks exacerbated the current global credit crisis.
It also says that economic supervisors noted that they had faced considerable industry resistance in advance of the recent episode when they had tried to encourage more rigorous and comprehensive stress testing.
The report looks at what specific risks there were that banks failed to notice. In particular, contingencies were not analysed when banks offered capital and liquidity support to affiliated investment vehicles on reputational grounds.
As a result, the Basel Committee will focus on quantifying the full range of liquidity risks that lay in wait for the financial sector.
The committee also aims to examine the way leading national supervisors such as the US Federal Reserve or Germany's Bafin communicate with banks and with each other.
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