Differences in how Basel III has been implemented in different jurisdictions has led to “market fragmentation”, which could create an uneven playing field and hamper the flow of capital across borders, a paper published by the Financial Stability Institute (FSI) warns.

Rodrigo Coelho, Fernando Restoy and Raihan Zamil say differences in how banks calculate regulatory capital are a key source of divergence. In particular, the valuation of loans and how losses on non-performing exposures (NPEs)