Danish central bank urges Basel to rethink parameter floors
Lars Rohde warns floors in IRB approaches could create incentive for greater risk-taking in some markets
The National Bank of Denmark has challenged the Basel Committee on its plans to introduce floors on the model parameters used by banks in their internal ratings-based (IRB) approaches.
Governor Lars Rohde warned of an "unfortunate side effect" on low-risk institutions such as Danish mortgage banks. The floors, he said, create an incentive to increase risk taking, with "adverse consequences" for financial stability.
In a letter to the committee, dated June 24, he called for the floor to be
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