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Regulators leave Basel II scaling factor unchanged on QIS5 results

BERLIN, May 24 (Global Risk Regulator) – Global banking regulators have decided to leave the current calibration factor for the Basel II capital rules unchanged after reviewing the results of the most recent test of the complex rules.

The current calibration – a 1.06 scaling factor for credit risk-weighted assets – will be maintained, the Basel Committee on Banking Supervision, the body of top banking supervisors from North America, Europe and Japan that in effect regulates international banking, said today.

The scaling factor is designed to ensure fulfilment of the regulators’ aim that the overall level of capital in the world’s banking system remains broadly the same with the adoption of the risk-focused Basel II regime, while allowing scope for individual banks to align their capital more accurately to the risks they face.

The Basel Committee said the results of the test, known as the fifth quantitative impact study, or QIS5, showed that for the Group of 10 (G10) leading economies the minimum required capital under Basel II, including the scaling factor, would decrease relative to current Basel I capital rules. The Committee’s review also took account of the results of the QIS4 test carried out in some countries.

For internationally active and diversified banks, there would be an average 6.8% decrease, based on the results for the approach to credit and operational risk that participating banks are likely to adopt after implementation.