Catherine Tornel, Chair of the Financial Market Commission (CMF), announced a plan on Tuesday to overhaul the internal risk models used by Chilean banks, a measure that could unlock approximately $10 billion in capital within the financial system.
Speaking at a seminar hosted by Clapes UC, the regulator detailed that the objective is to transition from the Basel III standard approach toward customized models for each institution. This would allow each bank to manage risk according to its specific market segments.
“Capital requirements exist solely to incentivize sound risk management and to protect the public should any safeguards fail,” Tornel stated during her presentation.
Reducing asset density
The implementation of these internal models seeks to reduce the density of risk-weighted assets (RWA) in the country. Currently, Chile averages 67% under the standard approach, a figure significantly higher than in other jurisdictions.
According to CMF estimates, adopting internal models could lower this index to 53%. This adjustment would represent a 375-basis-point improvement in the capital adequacy ratio.
To execute this transition, the CMF will have an authorized budget of approximately $100 million, approved by the Ministry of Finance and the Budget Office (Dipres). These funds will be allocated exclusively to the formation of a specialized technical team.
“We have the resources to assemble a specialized team for the validation of internal models,” the Chair confirmed.
The hiring process is set to begin in the near term. Tornel estimated that the new team could be operational within two months, as the regulator seeks to align its timeline with the proposals submitted by banking institutions.