New measures to lift veil on banks' capital

New Post Public Reply Private Reply Replies (1) Message Board
SaltyMutt

New measures to lift veil on banks' capital ratios

RELATED QUOTES

Symbol Price Change
DBK.DE 38.53 +0.32
SAN.MC 6.035 -0.144
HSBA.L 719.60 +2.90

By Laura Noonan

LONDON (Reuters) - The game may soon be up for banks that have made themselves look healthier by understating how risky their businesses are, which should help pension funds, savers and companies to decide which institutions to invest in.

Bowing to pressure from regulators and investors, some of the world's biggest banks will soon implement a landmark initiative that promises to reveal far more detail on how banks calculate how much capital they need to guard against potential future losses.

It's designed to restore faith in the capital ratios that are the global benchmark for banks' financial health, ratios that are highly sensitive to banks' risk judgments since they are determined as a percentage of banks' own measure of assets as weighted by risk.

"We're expecting a lot of good disclosure from the banks, and where it's not happening we're expecting institutional investors to challenge management on why they're not doing so," said Russell Picot, chief accounting officer at bank HSBC ( HSBA.L ) and co-chair of the industry taskforce that came up with the new standards for what banks should tell investors.

The initiative was instigated by global financial rules setter the Financial Stability Board (FSB).

A study by the Basel Committee last week showed precisely why it is necessary, revealing that the most aggressive banks assign just one eighth of the risk weighting applied by their most conservative competitors, making their capital position appear far more robust.

Deutsche Bank ( DBK.DE ) came under fire on Thursday when it told investors that it managed a better-than-expected improvement to its capital ratio in the fourth quarter, despite losing 2.5 billion euros ($3.4 billion), largely by changing its approach to risk-weighted assets (RWAs).

EXPERTS IN THE DARK

Even analysts who specialize in banks' finances are unable to unravel the figures and work out which banks are really the healthiest or making the most progress, because of inadequate disclosure.

The new measures, which have been publicly endorsed by industry giants including HSBC, Deutsche Bank and Santander ( SAN.MC ), will reveal key insights on the RWAs that feed into the banks' capital calculations.

Newly available information will include how much of their RWA improvements come from "optimization", or model changes such as Deutsche Bank revealed last week.

"There may be a bank that is neither well capitalized nor liquid, and they may feel concerned that by publishing in greater detail, it will become even more obvious," Picot said.

"The message for them has to be that the market is pretty good right now at understanding banks' shortcomings."

Some banks will show their hands in the 2012 annual reports they will publish in the coming weeks. Stragglers are expected to follow suit later in the year as the transparency drive intensifies.

The capital disclosure measures are part of a broader suite of reporting enhancements devised by a taskforce of the world's biggest banks, money managers, research houses and accountancy firms to address concerns about banks' often opaque accounting.

The initiative Picot co-chaired began on a wintry day in Basel in December 2011, when 82 senior executives convened for what one attendee described as a "frank" round-table debate on how banks could improve the way they report their results.

INVESTOR CONFIDENCE

The FSB, headed by the Bank of England's incoming Governor Mark Carney, wanted to restore investor confidence in banks rocked by the market turmoil that began in 2008 and has yet to abate.

"The FSB felt that certain risk information was needed by participants right now," said Gerald Edwards, a senior official with the U.S. Federal Reserve Board who was closely involved with the taskforce while on secondment to the FSB in 2011.

The taskforce executives, drawn from global leaders including BlackRock, BNP Paribas, Allianz, Ernst & Young, Fitch Ratings, JP Morgan, Royal Bank of Canada, Santander and KPMG, began work in earnest in May 2012 and were given until October to finish.

Such was the intensity of the job that HSBC's Picot said he had two of his bank's staff working on it full time and recalls getting emails at midnight on a Sunday from one of the taskforce's subgroups.

With the task completed in a fraction of the time formal regulation would have taken, the focus is now on implementation.

Picot said there was no set target for take-up, but he expected to see some banks incorporate the new measures in their 2012 annual reports.

"We would hope that in a particular country, a bank that adopts this report and adopts it well will reset the level of what is considered good disclosure, and that other banks would adopt similar practices, and from that, the tide would rise," he added.

Regulators across the globe, who had extensive engagement with the taskforce, are also keenly following progress and will be encouraging their banks to opt in, according to Picot and Edwards.

Those who don't, may end up having to give more information anyway. "Some of this will be picked up and put into regulations," said Edwards.

DOUBTS REMAIN

The effort does have its doubters, including Dierk Brandenburg, banking analyst with Fidelity Worldwide Investments.

"We remain skeptical that banks across a wide variety of jurisdictions (Europe, U.S. and Asia) and accounting regimes ... are in a position to meet the requirements," he said, adding that the increased links between governments and rescued banks could "put a limit to what authorities may deem to be the appropriate level of disclosure to investors".

Crispin Southgate, a taskforce member and director of Institutional Investment Advisors, has high hopes for banks' voluntary adoption, nonetheless.

Banks were consulted and were "very responsive", he said.

"This report is setting a marker for some very high standards, which we hope banks will reach for ... We don't want banks to wait for new rules."

(Reporting By Laura Noonan; Editing by Will Waterman)

Scroll down for more posts ▼

Top 10 Most Recent News Articles

Tuya Smart's AI Innovations Steal the Spotlight at IFA

Updated Category News Views 4

AI Taking Center Stage at IFA 2026 Amidst the chaos of tech exhibitions, something caught my attention—Tuya Smart's push in making AI a household name. Now, you might wonder why I’m bringing this up. Well, because it's not your typical flashy gadget talk. This is about Tuya parading their latest breakthroughs like a peacock at the world's stage, IFA 2026 in Berlin,...

Continue Reading
XCOTTON Shines at IFA 2026: The New Horizon of Commerce

Updated Category News Views 3

Shifting Gears at the Checkout Counter Let's face it, we've all been there: you click, you pay, and then you wait. But what happens next is where brands often drop the ball. Sure, e-commerce has been all about getting us to trust the 'buy' button. That's where folks like XCOTTON are stepping up to the plate, giving us something else to consider. They were loud and clear...

Continue Reading
China Hour Expands Chinese Media Footprint in Africa

Updated Category News Views 2

An Ambitious Cross-Continental Media Play The airwaves are getting a new twist. This time, it's a blend of cultures, as China Hour makes an entrance in South Africa. That's right, folks—Jiangsu Broadcasting Corporation (JSBC) has set up camp alongside the South African Broadcasting Corporation (SABC), pushing a big media wave across the continent. If you've been...

Continue Reading
Local Climate Resilience Gains Urgency in the Southwest

Updated Category News Views 2

Local Impact Means Taking Climate Change Personally If you haven't felt it yet, you will. Climate change isn't just a global headline anymore—it's a daily reality that’s reshaping life where you stand. David W. DuBois, New Mexico's top climatologist, is sounding the alarm this time on the new Net Zero Speaks episode, saying it's on us to use local climate knowledge to...

Continue Reading
Dreame Unveils Vast AI Product Range at IFA 2026

Updated Category News Views 3

Overnight Sensation or Future Staple? I wonder if Dreame's top brass woke up sweating or smiling after their big reveal at IFA 2026. A buffet of over 100 products across 16 categories is no small feat, especially when you're banking on technologies developed over nine years. But let's cut through the noise—does this showcase promise innovation or just smoke and mirrors?...

Continue Reading
Iwa Robotics Unveils Autonomous Drone Wildfire Fleet

Updated Category News Views 4

A Sky Full of Drones: A New Era for Wildfire Management Iwa Robotics is flipping the script on how we handle urban wildfires by rolling out a trio of drones straight out of an action movie: HAWK, CANARY, and PELICAN. These aren't just your run-of-the-mill flying machines. They're the latest tech-packed companions for our brave firefighters on the ground, designed...

Continue Reading
Shenzhen Media Push: Shaping Asia-Pacific's Future

Updated Category News Views 1

A Metamorphosis in Shenzhen You ever hear about a place that rockets from obscurity to global significance in the blink of an eye? Well, Shenzhen, China is that place. Forty years ago, it was just a quaint fishing village. Fast forward a few decades, and you've got yourself an international powerhouse—a testament to China's rapid development strategy. Shenzhen is now...

Continue Reading
viaim's AI Earbuds Snag IFA Awards, Launch On Indiegogo

Updated Category News Views 1

When the tech cosmos hands you two hefty IFA Innovation Awards, you know you’re onto something. viaim’s Rise wasn't just about slick marketing—it brought home the 'Best in Audio' and 'Best in Design' titles from IFA 2026, proving these earbuds are more than just another gadget. Key Innovations Behind the Accolades IFA is no small affair—it's a major tech trade...

Continue Reading
Morpho Unveils Versatile UV Printer at IFA 2026

Updated Category News Views 1

IFA 2026: A New Frontier for Desktop Printing You've seen your fair share of printers over the years, but when a company like Morpho steps onto the scene with a gadget that echoes innovation, it makes you perk up those market-ears. We're talking the big unveil of their desktop UV printer at the IFA 2026 in Berlin. Morpho's contraption isn't just spewing out ink; it's...

Continue Reading
Why Buyers Are Flocking to Whidbey Island Homes

Updated Category News Views 1

Something's got folks eyeing Whidbey Island like a gambler with a hot tip—and it ain't just the thrill of a vacation spot. Anyone with half a brain knows real estate moves in waves, and right now, Whidbey Island's caught some serious momentum. You can't ignore the pull of natural beauty, access to city life, and that laid-back vibe that seems to whisper "slow down and...

Continue Reading

Top 5 Most Recently Viewed Articles

Investing in AI Stocks: Palantir and Nvidia Stand Out

Updated Category News Views 295

Investing in AI Stocks: Navigating the Future of Technology Recently, Artificial Intelligence (AI) stocks have hit some bumps in the road. After soaring to impressive heights, the sector has faced significant declines. A prime example is the VanEck Semiconductor ETF, which focuses on semiconductor stocks connected to AI. At its peak, this ETF has dropped by 25% from its...

Continue Reading
Melio Partners with Amazon Business for Enhanced Payment Ease

Updated Category News Views 134

Melio and Amazon Join Forces to Simplify Business Payments Melio, a B2B payments platform built for small and medium-sized businesses, has integrated with the Amazon Business Reconciliation API. The result: Amazon Business invoices flow directly into Melio, so owners and finance teams can review, schedule, and pay in one place instead of juggling spreadsheets, portals,...

Continue Reading
Guardian Capital Group Reports Impressive Growth in 2024

Updated Category News Views 566

Guardian Capital Group Limited's 2024 Annual Results With the closure of another financial year, Guardian Capital Group Limited (TSX: GCG; GCG.A) has reported outstanding annual operating results for 2024. The results illustrate a notable positive trajectory, centered around strong revenue growth, an increase in client assets, and shareholder returns. Key Financial...

Continue Reading
Transforming $1000 into Wealth with Cognizant Tech Solutions

Updated Category News Views 247

Transforming Investment with Cognizant Tech Solutions Cognizant Tech Solns (NASDAQ: CTSH) has shown remarkable growth over the past two decades, significantly outperforming the market and providing substantial returns to its investors. With an average annual return of 10.38%, investors have witnessed the power of compounding in action. Currently, the company boasts a...

Continue Reading
Assessing Sirius XM Holdings: Is It a Smart Investment Now?

Updated Category News Views 137

As autumn settled in back in 2024, traders were forced to take a hard look at their portfolios. One name that had everyone buzzing was Sirius XM Holdings (NASDAQ: SIRI). The stock took a nosedive—about 48% down—and compared to the S&P 500’s solid 33% gain, this left many scratching their heads over its future viability. Understanding what went wrong with Sirius XM...

Continue Reading