Bank to tighten up on risk rating
Monday 24 March 1997
The move comes hard on the heels of the Bank's warning that the bonus culture in investment banks is tempting dealers to take greater risks.
The proposals have taken a year to prepare and are based on a concept called the Rate framework. This will include a new formal risk assessment for most banks, which will be prepared on an annual basis and will concentrate on identifying which area of each bank is most at risk. In this way the Bank hopes to concentrate its supervisory resources most effectively.
Michael Foot, the successor to Brian Quinn as the Bank's director in charge of banking supervision, said the proposals dovetailed with what other regulators were doing. The Securities and Futures Authority (SFA) already has the ability to require errant institutions to boost their proportion of capital against liabilities.
Mr Foot said: "Regulatory cooperation has expanded enormously in the UK. The Bank co-operated closely with the SFA over the collapse of Barings. The conversion of so many building societies to bank status this year has meant we have had to work very closely with the Building Societies Commission and recent problems in the asset management industry have meant working alongside Imro."
Asked whether such measures would have prevented the collapse of Barings, Mr Foot said: "This system would have warned us earlier that the asset management and securities side was becoming more important [to Barings]." Mr Foot said the rising exposure at Barings' futures operation in Singapore would have set off alarm bells as early as 1993 if Rate had been in place.
A prototype of the Rate process will be tested on up to 20 UK banks this year. The Bank will then turn to the thorny issue of supervising overseas banks with operations in the UK in the summer.
Mr Foot admitted the Bank's more intrusive role was worrying a lot of banks. "They are very concerned that this might be the thin end of a very long wedge. We will be having seminars with banks on these proposals in early May. It's all part of the new glasnost."
The Rate system will assess the business risk facing a bank using five factors, collectively known as Camel: capital, assets, market risk, earnings and liabilities. Much of the system is based on research done for the Bank last year by accountants Arthur Andersen which concluded the Bank needed to take on an extra 100 staff.
- 1 Kermit the Frog has a new girlfriend named Denise
- 2 The excuses your boss is most likely to believe when you call in sick
- 3 Moscow voted the world's unfriendliest city
- 4 I'm pansexual – here are the five biggest misconceptions about my sexuality
- 5 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
The one chart that shows how George Osborne is almost certainly going to be our next Prime Minister
The excuses your boss is most likely to believe when you call in sick
Three-year-old ultra-Orthodox Jewish children told 'the non-Jews' are 'evil' in worksheet produced by London school
Bono's group has made more money from Facebook investment than from all his music
Wikipedia rocked by 'rogue editors' blackmail scam targeting small businesses and celebrities
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum: Recruitment Genius: We are a vibrant and establishe...