Regulators begin to think that maybe market should be used to value securities

Bloomberg reports that away from the bank cheerleading at Davos, financial regulators might have suddenly realized that the best way to limit the variation in values banks put on their assets is to require disclosure and let the market value the assets instead.

Regular readers know that your humble blogger has been calling for regulators to take this step and require banks to disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

With this disclosure, the market can value each of the bank's exposures and exert discipline on the banks if the banks' valuation of the exposures for calculation of the riskiness of their assets strays from the market's.

Global regulators may impose restrictions on the way lenders model risk and assign capital after a review of banks’ trading practices found wide differences in their number crunching. 

A probe of banks’ calculation of the riskiness of their assets found “material variation” across the industry, Stefan Ingves, chairman of the Basel Committee on Banking Supervision, said in a speech in Cape Town. 

Regulators could respond with tougher disclosure rules or “limitations in the modelling choices for banks,” Ingves said in the prepared remarks today. 

“The committee’s work on how banks calculate risk weighted assets also feeds into a broader concern that, in pursuit of risk sensitivity, the Basel III framework has grown too complex.”