’ capital standards by a factor of between three and four. these cross - bank differences would be sufficient to absorb fully those reforms. the basel committee has recently undertaken its own hpe on a wider range of international banks, focussing on the trading book ( bcbs ( 2013 ) ). chart 5 summarises the range of variability in capital requirements for certain of the trading book metrics ( var, stressed var ( svar ) and the incremental risk charge ( irc ) ), while chart 6 focuses on the irc charges for a set of particularly complex models. 2 the variation is again enormous. calculated trading book risk weights differ by factors of three to five, even for simple metrics such as var. for some of the more complex, such as irc, the range of variation needs to be shown on a log scale. for some portfolios, it runs to three figures. for one, it runs to four, with one bank ’ s model suggesting $ 1 of capital, another ’ s over $ 1000, for an identical exposure. these inconsistencies are likely to be an under - statement of the true problem. because they cover only a sub - set of the banks using internal models, these exercises may significantly under - estimate variability across the bank population. the portfolios covered by existing hpe market - based measures of bank riskiness, such as cds spreads or credit ratings, are also consistent with this interpretation. if anything, these suggest the panel of banks is as risky or riskier today than 20 years ago. the european banking authority ( eba ) has also looked at the degree of consistency of european banks ’ risk weights, though not using a hpe methodology. it too found large cross - bank discrepancies. bis central bankers ’ speeches exercises have also tended to be relatively simple. more complex portfolios would probably result in wider cross - bank variability. the basel committee is currently undertaking an equivalent exercise for banking book assets. there is a delicate line to tread between useful diversity in model outputs on the one hand and useless inconsistency on the other. it is clear we are currently on the wrong side of this line. if a regulatory regime can generate capital ratios of 5 %, 10 % and 20 % for three identical banks, it is not a robust basis for assessing capital adequacy. in short, the objectives of the original basel accord are at risk. complex, self - regulation has added speed to the race

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