Banks should be required to explain how they measure risk in a standard portfolio so investors can "compare apples with apples", Citigroup's Chief Executive Vikram Pandit wrote in the Financial Times on Tuesday.
"We could go a long way to regaining ... trust by making the system more transparent, by clearing up some of the obscurity that causes people to believe the system is a game rigged against their interests," Pandit wrote in an op-ed piece published on the FT's website.
The present system allows banks to use proprietary models to measure Risk-Weighted Assets (RWAs), which in turn are used to calculate capital ratios.
Pandit's proposal calls for banks to apply their models to a standard portfolio, then publicize the results so investors can see which banks use conservative assumptions and which may be taking grater risks.
"Investors would reward institutions whose approach to risk and capital holdings seem to be sound and to punish those who appear to get it wrong," Pandit wrote…
Find out more at http://www.reuters.com/article/2012/01/10/us-citibank-banks-risk-idUSTRE8092IF20120110
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