Internal risk model squeeze faces backlash

Author: Edward Price | Published: 5 Jul 2016

Regulators are clamping down on banks’ use of internal risk models, instead pushing a new standardised approach. Despite the assertions of the Basel Committee, US counsel and industry feel the likely result is increased capital charges.

The regulatory push back against internal models takes different forms. In the US, one such is the Supervisory guidance on model risk management, better known as SR 11-7 and released by the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC) in 2011. While the guidance applies only to banks in the US, it’s becoming a global standard.

Gregory Lyons, DebevoiseThere’s also the looming Basel IV which seeks to crack on bank internal models. Regulators have been at pains to stress they aren’t aiming at significant or backdoor increase in the level of regulatory capital requirements. The Basel Committee on Banking Supervision (BCBS) has been particularly keen to...