Basel Proposes Using Risk Drivers Over Credit Ratings

The Basel Committee on Banking Supervision (BCBS) has released a proposal to reduce the reliance on credit agencies and internal models when calculating risk-weighted assets for regulatory capital, requesting comments by March 27 next year.

“The hard-wiring of external credit assessments into standards, laws and regulations may often lead to mechanistic reliance on ratings by market participants, resulting in insufficient due diligence and poor risk management on the part of lenders and investors,” the BCBS writes in Revisions to the Standardised Approach for credit risk.

Balancing generality with the need to identify local risks

Some of the proposed changes are technical updates meant to correct out-of-date calibrations from...