Improving the comparability of capital requirements across European banks is likely to take time as doubts surrounding internal ratings-based (IRB) models “are likely to continue to undermine trust in regulatory capital ratios,” according to a new report from Fitch Ratings.

“Greater consistency in the way capital ratios are calculated is especially important because almost all the world’s 30 global systemically important banks use IRB models, as do most of the EU’s systemically important banks,” Fitch says, adding that there’s a lack of trust in capital ratios generated using IRB models partly because differences in inputs, and other inconsistencies, make meaningful comparison of ratios across banks and countries difficult.

A consultation on the future of the IRB approach by the European Banking Authority (EBA), which closed last month, includes proposals for changes to internal models, Fitch notes. However, efforts to address some of the consistency and comparability issues, will require legislative changes. “This is likely to take considerable time,” Fitch says.

Also, the EBA’s proposed timeline for defining technical standards is not until the end of 2016, Fitch says, adding “We think delays to the EBA’s proposed timetable are likely.”

Moreover, the Basel Committee on Banking Supervision’s efforts to enhance consistency by reducing variability in the calculation of risk-weighted assets (RWAs) is making “slow progress”, the rating agency says.

There is limited transparency on which banks’ ratios might be overstated, Fitch says.

“The Committee’s reluctance or inability to name the banks whose capital ratios are overstated undermines confidence in the IRB models generally,” the rating agency observes. Although, it acknowledges that disclosure is difficult “because banks often participate in initiatives voluntarily and the Committee has no legal means to force disclosure.”

This reluctance to name names is not new, Fitch says, but it stresses that naming the banks “would be useful for market participants as it could shed some light on the banks’ estimated default probabilities and loss expectations, allowing analysts to adjust reported capital ratios if required.”