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Banks' estimates of credit risk still vary widely, Basel Committee says

Banks'estimates of credit risk, used to calculate how much capital they should hold againstloans, continue to vary widely, according to a new study by the world's top bankingregulators that echoed the results of a 2013 report.

Differingassessments of riskiness of loans to retail customers or small businesses couldmean that some banks' capital ratios would be between two and three percentage pointshigher or lower than a 10% benchmark, the Basel Committee on Banking Supervisionsaid in an April paper.

Its assessmentof whether banks are being consistent in applying regulatory standards came justa week after it released proposals that would ban banks from using their own models to calculate capitalto set aside against loans to other banks and to big companies.

Mostbanks' implied capital ratios lay within a 2-percentage-point range of the benchmark,the committee noted, adding that the outliers in its survey were often banks thatexperienced stress in their retail or small business loans.

In 2013,a similar Basel Committee study indicated that implied capital ratios from banks'risk assessments of loans could vary by as much as two percentage points from thebenchmark in either direction, but that most clustered with one percentage pointof 10%. That study was based on examining credit exposures to governments, banksand companies.

The greatestvariation in risk weight calculations in the latest report was found in banks' mortgageloan books, with estimated risk weights varying from as low as 5.2% to as high as75%. The least variation was found in loans to large companies.

The reportwas based on data from more than 30 major international banks taken in the secondhalf of 2014.