Imagine spending an entire career evaluating bad things that might happen to financial institutions. It’s no mere thought experiment done in passing, but rather a task that one slaves over in excruciating detail. For years upon years on a constantly moving chessboard of potential disaster.
So, who wants to be a regulator? Read more
FT Alphaville decided earlier this week that we are sick of the term “shadow banking”. We’ve failed to come up with an alternative, however, and in the meantime Edward Kane, a professor at Boston College, has presented a paper entitled “The inevitability of shadowy banking” at the Atlanta Fed-hosted financial markets conference.
Kane’s paper says shadowy banking is basically safety-net arbitrage. He defines it thus: Read more
In a previous post, we detailed trades that while making no sense economically, allow banks to game regulations around capital requirements and kick the recognition of losses further down the road.
This may have left you wondering how this is possible under the Basel II regulations, so we thought we’d walk you through the relevant sections, and outline the cases where this trade does, and doesn’t, work. Read more
The notice was rather vague, but we’ve done some sleuthing and have a better picture of what’s been going on now.
The timing of the letter struck us. The deadline for the great European bank recapitalisation isn’t far off (June 2012), but the conditions specified by the European Banking Authority cut off some of the most obvious routes, given the difficulty in tapping the funding markets: deleveraging and model tweakage. 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
…we don’t like carrying more capital than we need to. You’ve heard me before on the subject of building up war chests and carrying; that’s not the way we would wish to operate at all.
At end-2006 and end-2007 respectively, RBS published tier 1 capital ratios of 7.5% and 7.3% of RWAs, and total capital ratios of 11.7% and 11.2%… Read more
Teams of global regulators will fan out across the world from next year to ensure that new tougher capital and liquidity standards are enforced correctly, the chairman of the Basel Committee on Banking Supervision said on Wednesday, the FT reports. “The financial crisis resulted in a bold response by the committee,” Stefan Ingves told an audience of North and South American banking supervisors in San Francisco. “However, these efforts will have been in vain if they are not globally implemented on a consistent and timely basis.” The US notably has not yet fully implemented the 2004 Basel II agreement. However, the country hope to have a draft for the implementation of Basel III by the end of the year, according to an earlier report by the FT.
For now, the European Banking Authority’s 2011 stress tests are a starting point to determine the potential bill for recapitalising euro banks for their sovereign exposure. Most analyst estimates of capital needs — those big juicy €100bn, €200bn numbers that you come across– also tend to work from the EBA numbers.
That’s got us thinking about the test results again. In the first instance, about accounting for sovereign write-downs. And then in the second instance, about the treatment of deferred tax assets. Read more
Global Sifi buffers is both the likely new name of FT Alphaville’s pub trivia team and a hotly followed piece of financial regulation.
The Financial Stability Board is not due to formally announce its capital recommendations until November, but we already have a good idea what to expect. (The Federal Reserve is also still to announce its proposals.) The very biggest banks are expected to be subject to a 250bps tier one capital surcharge, with the threat of an extra 50bps charge left over to disincentivise supersizing. Read more
Risk-weightings for bank assets are still relatively new things.
Codified in the Basel II rules first published in 2004, they were meant to shift financials away from set levels of required capital, tailoring them to the perceived amount of risky assets held by banks. Read more
Here’s a capital curio for investors in Credit Suisse’s Monday-announced CoCos issue.
It’s probably not a surprise that a transition from the Basel II to Basel III regulatory regimes might create some scope for capital confusion. But here’s a concrete example picked out by Cannacord Genuity banking analyst, Cormac Leech. Tier 1 common equity ratios under the supposedly-stricter Basel III could end up being bigger than the ratios under Basel II definitions for some banks during the transitional period. Read more
Believe us, it’s taken all our willpower to not headline this post as Basel Faulty.
The London Banker has returned to blogging after a two-year hiatus. And boy, that 24-month break has done nothing to quell this former central banker’s ire. Read more
Presenting one of the more ironic headaches for sovereign issuers and European banks out there at the moment. At any rate, we’d point to a great story from Joel Clark and Ellen Davis of Risk Magazine.
We’ve noted Europe’s increasingly two-tiered government bond market before. (Alongside two-tiered sovereign ratings, money markets, CDS movements — you name whatever market, the eurozone is already de facto breaking up within it.) Read more
Is this what went wrong with Basel II?
Is this what will go wrong with Basel III? Read more
Synthetic CLOs — gone for good or simply slumbering the deep sleep of securitisation?
From Asset-Backed Alert: Read more
Swiss bank UBS has responded to Monday’s report from Standard & Poor’s, which you may recall ranked 45 of the world’s leading banks according to their risk-adjusted capital (RAC) ratios.
By S&P’s reckoning, UBS was near the bottom of the pile, with a RAC ratio of 2.2 per cent. In contrast, S&P gave HSBC a 9.3 per cent ratio, and Goldman 8.3 per cent. Moreover, under S&P’s model, an 8 per cent RAC level “corresponds to full coverage of the level of stress embedded in our ratio.” Read more
The BIS has released its analysis of proposed changes, adopted in July, to Basel II capital rules.
It’s basically an exercise in seeing just how much more capital banks will have to hold under the rejigged rules, which are due to come into effect in January. Read more
Basel II banking regulations are sooooo boring.
But Basel II’s effects on securitisation are fascinating, right? Read more
Proposed changes to Basel II banking regulations have not necessarily been getting the attention they deserve.
Hence, we read with interest a fantastic Deutsche Bank note on the impact of the adjustments, and specifically the potential fall-out from proposed increases to the risk weightings of resecuritisations. That’s something which involves (to put it crudely) how much capital banks will have to hold against synthetic or tranched securitisations — things like ABS-backed CDOs. Read more
Earlier this week, Andrew Haldane, the Bank of England’s director for financial stability gave a speech to the Marcus-Evans Conference on stress testing.
While that doesn’t exactly sound particularly enticing, it was. And we’d recommend that you read this – the paper Haldane has authored based on his speech. It’s entertaining and fascinating – and what it really very clearly shows is just what a blinkered world modern finance operates in. Read more