Britain's financial regulator is tightening its oversight of commercial property lending and has ordered banks to improve the way their internal models measure risk, the Financial Times reported on Monday.
The newspaper said, without citing a source, that the move by the Financial Services Authority (FSA) is part of a global effort to prevent banks from understating the risks on their balance sheets to boost their capital position.
The FSA has started with commercial property lending, as it argues that poor loan choices in this area have been central to most recent financial crises, according to the FT.
The FSA has told some banks to make their models for commercial property more robust by ensuring they include recent losses, or switch to the more standardised slotting calculation, the article said.
We've said to some banks, 'Improve your models or move into slotting', which would tend to require higher risk weights, the authority is quoted as saying in the article.
The FSA was unavailable for immediate comment.
(Reporting by Stephen Mangan; editing by Gunna Dickson)