“One thing that I think would stand you in very good stead is to avoid lobbying – influencing policy is probably a better way to put it. We hear so much about fragmentation, but then the banks and trade associations discuss at great length trying to lower the standards.”
That’s William Coen, deputy secretary-general of the Basel Committee on Banking Supervision, as quoted by Risk on Wednesday. Read more
On Friday, the FSA has published its feedback and responses to a review of the Financial Services Compensation Scheme funding model issued back in July. It’s long. Lucky for us then that we were looking for one thing and one thing only — the stance on “pre-funding”.
Pourquoi?
The revised Liquidity Coverage Ratio of course! Read more
Being cross about the Basel III liquidity ratio is so in season. One just can’t be seen dead smiling about it. It simply won’t do. Much better to join the other banks, and the ECB, in being all pouty about it. We’ll not even have the slightest smirk until the Basel Committee has agreed to loosen the criteria for eligible assets and made the outflow scenarios a lot less Beyond Thunderdome. Read more
On Wednesday, as FT Alphaville has already illustrated, European finance ministers failed to agree legislation that would enshrine Basel III bank capital rules into law. This despite all those involved having already agreed in principle to Basel III back in 2010.
So why the failure to agree? Read more
Basel III is looming. There is no escape. Tougher capital requirements for banks are on the way.
But the phase-in doesn’t begin until next year, and the ramp-up process is long. Not until 2019 will Basel III be fully baked in. Read more
In Part 1, we discussed the interest Spanish banks, and the likes of JP Morgan, have shown in securitisations that may lower their regulatory capital burdens by bundling up assets and selling the riskiest pieces of the resulting structures to investors.
Here, we look at another worrisome and expensive exposure on bank balance sheets, and discuss how the treatment of these deals has varied from regulator to regulator — something the Basel Committee has recently started to cast a critical eye on. Read more
Regulations set forth by the Basel Committee that govern the amount of capital that banks have to hold are meant to set a level playing field round the world.
Or at least, we thought harmonisation was the point. Read more
FT Alphaville has outlined how securitisation is getting back to its roots lately, allowing banks to reduce capital holdings at a time when fresh capital is hard to come by.
Basically, they buy protection on slices of their own assets, paying out handsome coupons to hedge funds and other investors to take on the assets’ risk. Ergo, less capital needs to be held by the bank to back this risk. Read more
The airwaves are once again aflutter with tales of the “shadow banking” sector, owing to the chief of the relatively new Financial Stability Board.
As the FT’s Tracy Alloway also recently reported, the sector was already back to its pre-crisis size at the end of 2010 at a healthy $60,000bn of assets. Read more
Nearly a year ago, the Federal Reserve came out with a letter that in summary said something along the lines of:
Dear Banks, Read more
You have nothing to lose but your capital requirements.
Some choice excerpts from the Basel Committee’s new report finding that global growth would face relatively few effects from making the world’s biggest banks (“G-SIBs”) hold extra capital: Read more
Global regulators insist the economic cost of implementing tough new rules on bank capital requirements will have only a tiny effect on global growth, with their latest estimate putting the impact at barely a tenth of the industry’s own projection, the FT says. In an assessment of the impact of the Basel III rulebook published late on Monday, the Financial Stability Board and the Basel Committee on Banking Supervision concluded that the reforms would only slow gross domestic product by 0.34 per cent at its peak over the eight-year period during which the rules are being implemented. The impact would settle back to a permanent negative of about 0.3 per cent, the study found. The findings contrast with a recent study by the Institute of International Finance, which represents most global banks, estimating that the new rules could bring global output down by 3.2 per cent by 2015 and lead to 7.5m fewer jobs being created. Also in the FT, Sir John Vickers, chairman of the UK’s Independent Commission on Banking and three other members of the government-appointed commission defended their reform proposals against charges that they may limit the competitiveness of the UK. Read more
Global banking regulators have brushed off criticism from bank chief executives, saying that they will press ahead with plans for capital surcharges on the largest and most interconnected global banks starting in 2016, reports the FT. The Basel Committee on Banking Supervision said that it plans to make some technical adjustments to the way global systemically important financial institutions, known as G-Sifis, are classified, But people close to the process said that they are unlikely to change the rankings. Currently 28 institutions are expected to face additional capital requirements, with eight banks expected to be hit with the highest surcharge of top quality core tier one capital equal to 2.5 per cent of their assets, adjusted for risk. Read more
Global bank regulators are preparing to ease new rules that would require banks to hold more liquid assets to withstand a funding crunch in a crisis, says the FT, citing people familiar with the discussions among members of the Basel Committee on Banking Supervision. A growing number of members on the committee now want to soften key technical definitions in the “liquidity coverage ratio”. The move follows complaints from banks that the new Basel III standards on liquidity – the first international rules of their kind – would force them to sharply curtail lending to consumers and businesses. US and continental European regulators are expected to push for changes that would ease the impact on their banks, while the UK, which pioneered the first national liquidity rules in 2009, is said to support the status quo. No changes to the ratio have been finalised, and discussions are continuing. The full committee meets later this month. Read more
Global regulators endorsed twin proposals on Monday to force the biggest banks to hold extra capital and write “living wills” that will enable them to be shut down safely in a crisis, the FT reports. The Financial Stability Board endorsed the capital surcharge plan, the Basel proposal to require about 30 global systemically significant financial institutions, known as G-Sifis, to hold additional equity against unexpected losses. The FSB also unveiled what its chairman, Mario Draghi, promised would be a “very major change in national and cross-border practice” towards deeply troubled global institutions. Regulators will be given a toolkit for breaking such banks into viable and nonviable parts. The proposals will be presented on to the leaders of the Group of 20 leading economies for approval in November. The FSB also also gave its support to ”bail-ins” to impose losses on bondholders were endorsed, and said its next report to the G20 would include recommendations on regulating the shadow banking sector. Read more
Rabobank is planning the first bond to comply with tough new global rules on which securities can count towards regulatory capital, reports the FT. The Dutch mutual, the only private sector bank with a triple-A rating, is marketing a deal for a hybrid in which investors will lose all their money if the bank breaches pre-set capital ratios. The deal comes after the Basel Committee on Banking Supervision last week said that all hybrids must in future contain a mechanism for forcing investors to take losses at the point of that bank’s crisis, either by converting to equity or, as in Rabobank’s deal, writing off the value of the deal. Read more
CoCo *pops.* Curtains for CoCos. And so on.
Late on Thursday the Basel Committee released its final (and curt) rules on loss-absorbing bank capital, including the mandate that all Tier 1 and Tier 2 instruments are able either to be written off or converted into equity at the behest of regulators. Read more
Global regulators have imposed tough requirements on the bonds that banks can count towards their regulatory capital in a bid to kill off a funding technique that has been blamed as a key contributor to banks’ need for taxpayer bail-outs. The changes affect so-called hybrid securities which sit between equity and debt and were intended as a buffer to soak up unexpected losses, reports the FT. However, during the crisis they failed to take losses, leaving those investors unaffected even as banks accepted hundreds of billions in rescue funds from governments. The Basel Committee on Banking Supervision said on Thursday that banks would have to make sure that hybrids include a mechanism for taking losses, known as a “bail-in”, that allows them to be converted into equity or written off. Read more
Worthwhile reading on Tuesday — 22 pages of a Basel Committee on Banking Supervision report to the G20, on its financial reform activity since a 2009 Group summit told it to get cracking.
There are good summaries here of what Basel’s new global capital and liquidity rules will do, the geological-epoch-long transition timetable, and what the Committee is looking at next. Read more
Top bankers in the UK, US and Switzerland are braced for their national regulators to impose tougher capital requirements than those required by Sunday’s landmark global agreement, even as investors bid up bank shares on relief that the standards were not more rigorous, the FT reports. The 27 member countries of the Basel Committee on Banking Supervision agreed on Sunday that banks would in effect be required to triple core tier one capital ratios from 2 per cent to 7 per cent by 2019. This ratio measures the buffer of highest-quality assets that banks hold against future losses. Investors welcomed the agreement, sending bank shares higher. Those banks considered to be the best capitalised gained the most, including France’s ociété GénéraleS, up 4.3 per cent, and JPMorganof the US, up 3.7 per cent by midday. But critics of the deal complained that the capital definitions, timetable and overall ratio had been watered down to win over Germany and others. They also warned that putting off new rules on liquidity standards until 2015 could endanger the financial system. Read more
It’s not the capital, it’s the liquidity. It’s not the Maginot Line; it’s how many Panzers are pummelling through the Ardennes beside it.
And thus it’s not Basel III; it’s what banks will do — and where they will find the liquidity and the counterparties to do so — to get around it. Read more
It’s here, finally. With a minimum bank capital ratio of 7 per cent.
The world’s central bankers and regulators confirmed new capital and liquidity standards for the banking system on Sunday. Read more
Germany’s top 10 banks will have to raise as much as €105bn ($135bn) of fresh capital under a global regulatory overhaul, the country’s banking industry warned in a last-minute campaign against the new rules, reports the FT. The so-called Basel III rules would curtail bank lending and undermine Europe’s biggest economy, said the Bundesverband deutscher Banken, representing private sector banks. The warning on Monday came a day before a meeting of the Basel Committee on Banking Supervision, which is finalising the new rules on capital and liquidity requirements for banks. Read more
Germany’s top 10 banks will have to raise as much as €105bn ($135bn) of fresh capital under a global regulatory overhaul, the country’s banking industry has warned, in a last-ditch effort to change tough new rules, reports the FT. The so-called Basel III rules would stymie the banks’ ability to function, curtail lending and undermine Europe’s biggest economy, said the Bundesverband deutscher Banken, representing private sector banks. The warning on Monday came a day ahead of a meeting of the Basel Committee on Banking Supervision, which is putting the finishing touches to rules governing the capital and liquidity requirements for banks. Read more
Some bank bondholders would be forced to take losses or convert investments into equity under regulators’ plans to improve banks’ capital and avoid further bail-outs, reports the FT. The proposals, from the Basel Committee of global banking regulators, would add a contractual obligation into subordinated bonds, or hybrids. This would allow regulators to force banks to write off the securities or convert them into shares, thereby providing a capital buffer. Read more
Basel goes bank CoCo nuts. Or as the Basel Committee has put it more, ah, soberly:
The Basel Committee is of the view that all regulatory capital instruments must be capable of absorbing a loss at least in gone-concern situations. Furthermore, it believes that a public sector injection of capital needed to avoid the failure of a bank should not protect investors in regulatory capital instruments from absorbing the loss that they would have incurred had the public sector not chosen to rescue the bank. Read more
This is either another lesson in the non-impact of the European stress tests — or proof of la bonne chance of French banks.
A rally in European bank stocks simply kept on going on Tuesday, with French financials leading the charge: Read more
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