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From http://online.wsj.com/article_email...92812208574024-lMyQjAxMTAxMDEwMTExNDEyWj.html
J.P. Morgan Chase CEO James Dimon recently fired a broadside over that issue. He questioned differences in models other banks use to calculate risk-weighted assets that help determine Tier 1 ratios. A comparison of J.P. Morgan's risk-weighted assets to peers suggests their approach "can't be accurate," Mr. Dimon said at his bank's investor-day conference last month. "I mean, obviously, someone's using far more aggressive models." Although Mr. Dimon didn't single out particular institutions, it appears he was pointing a finger at Europe.
Risk weightings of assets measure the threat of loss posed by different holdings. So, a government bond will receive a lower risk weighting than a "junk" bond. A lower risk weighting for a bank's total assets may allow it to hold less capital. That can help boost returns and profit.
Determining risk weightings relies on complex calculations and judgments. In the U.S., banks calculate them based on an older, restrictive version of international capital standards. European banks use an updated version allowing wider discretion through management's use of internally devised risk models.
The result: Major European banks' risk-weighted assets at the end of the third quarter were about 27% of total assets; at U.S. banks, they were 54%, according to a December report by Goldman Sachs. Some of this may be due to differences in holdings, such as big European banks holding far fewer mortgages. But the difference still is striking, especially given similarities in investment-banking operations
J.P. Morgan Chase CEO James Dimon recently fired a broadside over that issue. He questioned differences in models other banks use to calculate risk-weighted assets that help determine Tier 1 ratios. A comparison of J.P. Morgan's risk-weighted assets to peers suggests their approach "can't be accurate," Mr. Dimon said at his bank's investor-day conference last month. "I mean, obviously, someone's using far more aggressive models." Although Mr. Dimon didn't single out particular institutions, it appears he was pointing a finger at Europe.
Risk weightings of assets measure the threat of loss posed by different holdings. So, a government bond will receive a lower risk weighting than a "junk" bond. A lower risk weighting for a bank's total assets may allow it to hold less capital. That can help boost returns and profit.
Determining risk weightings relies on complex calculations and judgments. In the U.S., banks calculate them based on an older, restrictive version of international capital standards. European banks use an updated version allowing wider discretion through management's use of internally devised risk models.
The result: Major European banks' risk-weighted assets at the end of the third quarter were about 27% of total assets; at U.S. banks, they were 54%, according to a December report by Goldman Sachs. Some of this may be due to differences in holdings, such as big European banks holding far fewer mortgages. But the difference still is striking, especially given similarities in investment-banking operations
