Banks deemed to be too-big-to-fail should hold more capital reserves to protect against operational risks, such as rogue traders, regulatory fines and fraudulent employees, the Financial Stability Board said.
Bloomberg reports that supervisors found 'real weaknesses in the assessment of capital for operational risk and in the models used and their assumptions', the FSB, a group of global regulators, said in a report today. The Basel Committee on Banking Supervision should update its capital guidelines to reflect the importance of the issue by the end of 2014, the FSB said.
Global regulators have observed mistakes and scandals at some of the world’s largest banks in the last year. JPMorgan Chase & Co. (JPM) lost at least $6.2bn this year after failing to manage flawed positions on synthetic credit securities, UBS AG (UBSN) lost $2.3bn after an unauthorized trading scandal in London, and Barclays Plc (BARC) was fined $468m in June over manipulations of interbank lending rates.
'The recent spate of high-profile, and potentially solvency-threatening, operational risk events and failures have added urgency to fundamentally reviewing these capital approaches', the FSB said.
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