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Banks could be ordered to hold more capital against risky loans
BANKS might still hold too little capital for the risks they are running, the Bank of England’s Andrew Bailey warned yesterday.
Bailey, the head of the prudential regulation authority (PRA), said he reserved the right to intervene if lenders underestimated the risks on their books.
“A major lesson [of the crash] is that to use models and stress tests effectively requires intensive development and maintenance by firms, a highly skilled body of supervisors and a regime where judgement can be used,” he said.
“It also requires the supervisor to have a credible capacity to withdraw the permission given to a firm to use a particular model if the model is considered to be inadequate or the firm has not demonstrated the capacity to use it safely.”