Ingves: Restoring confidence in banks

Date 04/03/2014

Many people's confidence in the banking sector was lost during the financial crisis. The Basel III Accord plays an important part in restoring this confidence. Another important part is played by the measures that the Basel Committee is taking regarding the calculation of risk weighted assets by the banks. Governor Stefan Ingves discussed these matters in his role as chairman of the Basel Committee on Banking Supervision (BCBS) at a conference arranged by the Global Association of Risk Professionals (GARP) in New York, USA, on 4 March 2014.

 

The Basel Committee has taken several measures to strengthen the banking system's resilience to similar crises: mainly the so-called Basel III reforms. However, more is needed to restore confidence in the banking system. In his speech, governor Ingves emphasised the importance of the Basel Committee's work on reviewing and strengthening the framework for the banks' calculation of risk weighted assets. So far, the Basel Committee has published three studies on the subject. One conclusion is that the difference in risk weights between banks is not only due to the difference in actual risks but also to a substantial degree due to bank specific factors. To increase the credibility of the regulations and comparability between the banks, the Basel Committee's goal is to develop measures that will help reduce the variation in risk weights not caused by actual risk. At the same time, the Basel Committee wishes the models to continue to have an appropriate level of risk sensitivity. Governor Ingves also pointed out that the banks should also have a strong interest in ensuring that their risk-weight calculation methods are seen as robust and credible.

 

Governor Ingves concluded by emphasising the importance of constructive dialogue between supervisory authorities and the industry in these issues. Through their own actions, the banks must take a leading role in the work of restoring confidence in the banking sector. Restoring confidence in banks is critical to the end objective, which is to buffer the real economy against financial stress.

 

Read the whole speech via the link.