Mr. Levin asks a question of Michael Cavanagh that has deep relevance today as banks move into the Basel III regulatory regime, which makes heavy use of models to calculate risk-weighted assets (and thus capital). The fear right now is that banks are tweaking their models to lower risk weighted assets, to lighten capital charges. Mr. Levin just asked if it's appropriate to adjust models to reduce risk-weighted assets, something that occurred at JPMorgan as the credit bets soured. "It can be appropriate," said Mr. Cavanagh, currently co-chief executive of JPMorgan's investment bank. He qualified that by saying any such moves would have to be done with transparency and with the correct controls.
Hearing this, one has to wonder how much risk-weighted assets at JPMorgan are reduced in this fashion today.
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