Speech – Simplicity, risk sensitivity and comparability: the regulatory balancing act

by Sabrina I. Pacifici on February 26, 2013

Simplicity, risk sensitivity and comparability: the regulatory balancing act (speech by Wayne Byres Secretary General Basel Committee on Banking Supervision) BCBS-EMEAP-FSI High-Level Meeting 25–26 February 2013, Seoul, Korea: “But as anyone knows who has built, supervised or just tried to understand internal risk models within a bank, they are not simple. They are, of course, a simplification of the real world, but that is not much of a consolation since the real world is extremely complex. The difficulty is that, if models are oversimplified, they do not produce risk measures that reflect reality. But if made too complex, hardly anyone can say whether they produce realistic risk measures or not! And by allowing a degree of flexibility for banks to model risks as they see them, we make it more difficult to achieve comparability. Getting it “just right” therefore requires careful judgement.”

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