FSA forces UK banks to assume higher sovereign losses
Behind-the-scenes clampdown sets loss-given-default floor at 45% – and could make UK bonds less attractive
Big UK banks will have to assume losses of at least 45% on all sovereign credit exposures in the banking book – many times higher than the levels they have been estimating – as a result of a Financial Services Authority (FSA) clampdown on internal capital models. That will inflate the risk-weighted asset (RWA) number on which capital requirements are based, making some debt less attractive – including that of the UK, banks claim. Banks were told of the policy change in June, but it has not been
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