Deutsche Bank, which has faced the highest legal bills among continental European lenders, will probably set aside even more capital or shrink businesses as global regulators tighten the rules for how banks measure risk.
“The big issue for us, and this is a little idiosyncratic to us, is on the operational risk side,” Deutsche Bank’s Chief Executive Officer John Cryan told investors at a conference in New York this week. Implementing rules put forward by the Basel Committee on Banking Supervision for calculating so-called operational risk could lead to “quite a significant inflation in the amount of capital that would be required,” he said.
Bloomberg News reports that the Basel Committee, whose members include the U.S. Federal Reserve and the European Central Bank, proposed in March to bar banks from using their own models for determining how much capital they need to cover operational risk, which encompasses losses from litigation, rogue traders and cyber crime. Such models are “unduly complex” and have led to “insufficient levels of capital for some banks,” the regulator said.
As a result, the Basel Committee proposed that banks use a single, new standardized measurement approach.
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