The secretary general of the the Basel Committee on Banking Supervision announced this week that it is contemplating a further refinement in the regulatory framework for banks, and is considering an output floor and that limit bank's use of their own internal models to set capital requirements. Some advance banks would have been motivated to develop their own approach and analytics rather than live with more basic capital requirement approaches.
However, under the yet to be decided reforms, the elimination or limitation of the output floor will probably increase capital levels for certain more advanced banks. The aim of the new reforms is not to raise system wide capital per se, but instead put pressure on certain outlier banks to raise more capital. The FT, which first ran a piece on this this weekend (authors: C. Binhan & T. Brunsden) suggest that US bank supervisors would welcome this reform, while European regulators are loathe to consider impact for the already challenged sector.
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