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The Basel Committee on Banking Supervision recently published its report on the regulatory consistency of RWA for market risk. It has been questioned how banks calculate their risk-weighted assets (RWA), since this determines how much capital they need to hold. The report contains the results of a hypothetical test portfolio exercise, in which 15 internationally active banks in nine countries participated. They were asked to calculate the total capital required to support the hypothetical trading portfolio. The results show that the variation within individual asset classes – such as credit risk or interest rate portfolios – in several cases was more than eight times. Hypothetically, some banks could then hold 100% of the capital whereas others only 12,5%.

Around one-quarter of the total variation can be attributed to supervisory decisions applied to individual banks. These supervisory actions typically result in higher capital requirements than would otherwise be the case but can also increase the variation in RWA between banks. Some supervisors have restricted what kind of models can be used, while others allow banks more free rein, the study found.

Oliver Röthig, Regional Secretary of UNI Europa, is concerned about the situation. “The banks are continuing to manipulate figures, which risks the stability of the whole financial system and undermines reform efforts. Banks have to become serious”, he said.