Revisiting Risk-Weighted Assets
IMF Working Papers, March 1, 2012
Source details
- Canonical URL
- Revisiting Risk-Weighted Assets
Other formats
Bibliographic details
- Authors: Sofiya Avramova, Vanessa Le Lesle
- Published: March 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475502657.001
Overview
- Authors: Sofiya Avramova, Vanessa Le Lesle
- Date: March 1, 2012
- Purpose: Provide an overview of concerns surrounding variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework.
- Dataset/sample: A sample of systemically important banks from Europe, North America, and Asia Pacific.
- Main tasks in the paper:
- Discuss key drivers behind differences in RWA calculations.
- Discuss a range of policy options to address actual and perceived problems with RWAs and improve the use of risk-sensitive capital ratios.
Key findings and observations
- Variations in the calculation of RWAs across banks and jurisdictions raise concerns about the effectiveness of the Basel III capital adequacy framework.
- Differences in RWA calculations are driven by multiple identifiable factors (see "Drivers of RWA differences" below).
- The paper draws upon empirical evidence from systemically important banks in Europe, North America, and Asia Pacific to illustrate the magnitude and nature of RWA variation.
Drivers of RWA differences (as discussed)
- Heterogeneity in risk modeling choices across banks.
- Differences in regulatory implementation across jurisdictions.
- Use of internal ratings-based (IRB) approaches versus standardized approaches.
- Treatment of specific exposures such as covered bonds and unsecured debt.
- Variations in market risk modeling and capital treatment.
Policy options and recommendations discussed
- Explore policy measures to fix actual and perceived problems with RWAs.
- Improve the use of risk-sensitive capital ratios by addressing model and implementation heterogeneity.
- Consider reforms that increase comparability and robustness of RWA calculations across banks and jurisdictions.
- Potential policy focus areas include constraints on modeling choices, enhanced regulatory oversight of internal models, and calibration of standardized approaches to reduce variability in RWAs.
Subjects and keywords (as listed)
- Subjects: Banking, Basel II, Basel III, Capital adequacy requirements, Covered bonds, Financial institutions, Financial regulation and supervision, Market risk
- Keywords: Asia and Pacific, Asia Pacific bank, Banks, Basel I, Basel II, Basel III, Capital, Capital adequacy requirements, Covered bonds, credit risk, Europe, Global, II, III, IRB bank, Market risk, North America, pillar III report, Pollar III report, Regulation, risk appetite, risk modeling choice, Risk-weighted Assets, RWA methodology, unsecured debt, WP