Standardised approaches to risk under Basel III
could cause the next financial crisis, according to a report by the London School of Economics
The study by the university’s Systemic
Risk Centre claims that forcing banks to adopt the same risk
models sets the system up for total systemic failure,
highlighting Basel III as less accurate in its forecasting than
While allowing banks to take their own approach
makes the system more robust, a variety of different risk
weightings for the same asset is also problematic.
Simon Gleeson, partner at Clifford Chance, said it is more important that
banks are first made safe to fail.
"If we’re arranging the system so that everyone
fails simultaneously, then...