The Basel Committee on Banking Supervision’s recent warning about the risk reporting practices of the world’s biggest banks represents a credit negative for the banks, says Moody’s Investors Service in a new report.
Last week, the Basel Committee said that most of the global systemically-important banks (G-SIBs) are not yet in compliance with its principles for effective risk data aggregation and reporting.
Moody’s says that the assessment is credit negative for the big banks “because it signals that most still do not have the appropriate quality of risk management practices and decision-making processes that the Basel Committee identified as important following the global financial crisis.”
The rating agency says that the regulators report that banks are falling short in a wide range of areas. “The key challenges that G-SIBs faced when implementing the principles were technical issues and problems determining materiality thresholds,” Moody’s says.
Moody’s notes that the Basel Committee called on both the banks, and their local regulators, to make it a priority to fully implement its principles.
Read: Basel report finds “unsatisfactory” compliance
“Supervisors plan to communicate details of the assessment results to G-SIBs’ boards of directors and senior management by June 2017,” Moody’s says. “Supervisory measures that are available include requests for specific remediation action plans and deadlines, independent reviews, increasing supervisory intensity, imposing capital add-ons and restricting business activities.”