(Adds more detail)
LONDON, Sept 30 (Reuters) - The Bank of England (BoE) set
out proposals on Wednesday to end unfair advantages some banks
have in calculating how much capital to hold for mortgages in a
bid to increase competition.
Some bigger banks can use their own internal models for
determining the risk weightings and therefore capital levels for
home loans they have granted.
Typically this has resulted in lower capital levels than
under the so-called standardised approach to risk weightings set
out by regulators that many smaller lenders have to use.
The BoE's banks supervision arm, the Prudential Regulation
Authority (PRA), said it wanted to reduce risks that stem from
"inappropriately" low risk weightings that can be thrown up by
in-house models.
"For those firms whose risk weights may increase as a result
of these proposals, and where capital requirements are not
already determined by other capital measures (e.g. leverage),
there would be costs for the firm associated with the additional
capital required," the PRA said in a statement.
The proposals would narrow differences between in-house
models and the standardised approach and limit future
divergence, it said.
"The PRA considers that this would support competition
between firms on the different approaches," the PRA said.
(Reporting by Huw Jones; Editing by Gareth Jones and Mark
Potter)