Basel’s standardised approach heightens systemic risk

Author: Lizzie Meager | Published: 4 Aug 2015

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 Basel II.

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...



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