KPMG: Piecemeal changes to capital rules could increase risk

Tim Wallace
Follow Tim
CHAOTIC changes to banks’ capital rules could mean that instead of ending lenders’ worries over Basel 3 regulations, the sector could be heading for another round of negotiations, KPMG said yesterday.

The rules were intended to be a global plan to banking safer.

But regulators from the US, EU, UK and more have tweaked the rules, which KPMG’s Giles Williams believes could lead to a new agreement being needed.

“The discussions on risk weightings and leverage ratio changes are beginning to look like a soft-launch of Basel 4,” he told City A.M. “But although the aim might be to make banks safer, to raise say an extra £50bn they may end up deleveraging, potentially cutting low-risk loans and focusing on ones with higher returns, perversely making the system riskier.”