US banks face capital hit from resurgent advanced approaches
Banks pushed onto internal models wrestle with procyclical capital charges
With the coronavirus crisis rattling markets and undermining the creditworthiness of even rock-solid firms, US banks have seen risks gauged using their own models leap higher relative to regulator-set standardised measures. Given that the latter are far clunkier than banks’ internal indicators and respond more slowly to changing credit conditions, this could have wide-ranging implications for capital allocation.
As of end-March, three systemically important US banks – Citi, Goldman Sachs and
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