Friday, January 25, 2008

Banks Will Disclose More Details on Risk Practices

Bloomberg, Sean B. Pasternak, 25 January 2008

Canadian banks including Royal Bank of Canada and Toronto-Dominion Bank will begin disclosing more information on their risk management starting as early as next month when they release first-quarter results.

Under new rules set by Basel II, a global standard for capital and risk practices, banks will be required to disclose 14 measures to investors, said Vivek Wadhwa, a principal at consulting firm McKinsey & Co. Some of these measurements will be disclosed quarterly, while others will be annually.

The measures are ``to increase transparency and enable market participants to obtain and assess important information,'' Wadhwa, a Basel II expert, told a conference in Toronto today. ``You'll see a significantly higher level of disclosure in Basel II compared to what was in Basel I.''

The disclosures will include credit adequacy and investments related to counter-party risk, he said. Banks globally have spent as much as hundreds of millions of dollars to address operational risk under the new accounting standard, said Wadhwa.

Societe Generale SA reported the largest trading loss in banking history yesterday after the French bank said a rogue trader placed bets on stock-index futures.

The events are an ``example of a failure perhaps in internal processes,'' Wadhwa said.

Canadian banks have also taken losses in the past year, including Canadian Imperial Bank of Commerce, which has announced writedowns of about $3.2 billion on investments linked to the U.S. subprime mortgage market. Bank of Montreal took writedowns of C$440 million last year on losses from natural gas trading.