FT Alphaville » capital requirements

The JPMorgan Whale’s regulatory motive

David Murphy — Fri, 15 Jun 2012 11:42:54 +0000

The full story of why JPMorgan entered into the trades that cost it so much money may never become public. However, thanks to Jamie Dimon’s testimony on Wednesday, we can conjecture a little more about the motivations behind the synthetic credit trades entered into by the bank’s Chief Investment Office.

The story begins with surplus deposits. JPMorgan was perceived as safe thanks to its size and relatively good record during the 2008 crisis, so it attracted significant deposit inflows. Much of this money was lent out, but not all of it was, giving rise to the problem of what to invest it in. With government bonds paying record low rates, the bank decided, understandably, to invest some of the funds in corporate and asset-backed securities. The CIO bought over $380bn of these bonds, a very substantial position.

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FSB, Basel stand up for new capital rules

Kate Mackenzie — Tue, 11 Oct 2011 03:39:11 +0000

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.

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Solvency II faces year’s delay

Kate Mackenzie — Wed, 05 Oct 2011 04:52:54 +0000

The UK’s financial regulator has acknowledged for the first time that new European capital rules for insurers are now likely to come into force in January 2014, a year later than expected, the FT says. However, it stopped short of saying UK insurers would avoid running two sets of capital models and reporting standards in parallel during 2013, when the Financial Services Authority runs its triennial capital adequacy test of the industry. European political authorities are expected to delay the full implementation of Solvency II, the new capital regime for insurers, by 12 months to the start of 2014 to give more time for many countries’ regulators and local industries to prepare for the rules.

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Banks warned not to cut lending

Kate Mackenzie — Thu, 29 Sep 2011 03:01:16 +0000

UK banks should cut bonuses and dividends rather than reduce lending to customers as they try to strengthen their balance sheets and cope with falling profits, the Bank of England’s financial policy committee has warned. The committee, which is charged with identifying and tamping down risks to the financial system, urged banks to take “any opportunity” to strengthen capital and liquidity as the eurozone crisis sent shockwaves through the financial system – but not in ways that would constrain lending. More about the BoE’s wishlist on FT Alphaville.

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Banks say capital rules ‘will cost 7.5m jobs’

Kate Mackenzie — Wed, 07 Sep 2011 03:59:20 +0000

The Institute of International Finance, which represents the biggest financial groups, claims in a study that higher bank capital rules will drive up the cost of credit, hampering global growth and wiping out 7.5m jobs. The FT reports the IIF, whose membership ranges from Morgan Stanley to UBS, estimated that banks would push up lending rates by 3.5 percentage points as they struggled to safeguard profits while building an additional $1,300bn in capital by 2015. The study found that the new rules could bring global output down by 3.2 per cent by 2015 and lead to 7.5m fewer jobs created. The report is part of a rearguard action by the industry against tougher standards already agreed between regulators and politicians.

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Stricter ringfencing for banks than feared

Kate Mackenzie — Fri, 05 Aug 2011 04:46:22 +0000

The ringfence to be put around Britain’s retail banking operations – the core recommendation of the government-appointed Vickers Commission – will be far stricter than many bankers had anticipated, according to people familiar with the report, the FT says. Next month’s final report by the Independent Commission on Banking, chaired by Sir John Vickers, will set the ringfence very high, the people said. That will bar groups’ investment banking operations from securing funding advantages from their sister retail banking operations in a move that could be particularly disruptive for the likes of Barclays and Royal Bank of Scotland.

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UK ringfencing could go ahead, says Barnier

Kate Mackenzie — Fri, 22 Jul 2011 03:53:51 +0000

EU’s internal market commissioner says the EU proposal to harmonise capital rules will still allow the UK to ringfence its retail banks. Michel Barnier told the FT that his proposal would split into two jurisdictions so that the UK, Spain and other countries wishing to impose additional demands on parts of their banking sector would be able to do so. Some investors had interpreted the wording of Mr Barnier’s Capital Requirements Directive 4, which has to be approved by the European Council and Parliament, as effectively barring the UK’s Independent Commission on Banking, chaired by Sir John Vickers, from pursuing its proposals to force banks in Britain to ringfence their retail operations. But Mr Barnier said: “It seems [the Vickers Commission] may be proposing 10 per cent for retail banks. That would be possible in my proposal. We think we have the flexibility we need,” he said. “We do think the [Vickers] proposals can be integrated into our framework.”

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FSB supports capital surcharge and living wills

Kate Mackenzie — Tue, 19 Jul 2011 02:00:34 +0000

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.

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BofA sells Balboa unit to boost capital

Kate Mackenzie — Fri, 08 Jul 2011 04:42:39 +0000

Bank of America has agreed to sell its Balboa Life Insurance unit to Securian Financial, a US provider of insurance and retirement plans, for an undisclosed amount. The FT says largest US lender has been selling extraneous businesses to refocus on its core operations of retail and commercial banking in the face of new regulatory rules that will boost capital requirements for the largest banks. BofA has said it expects to record a pre-tax gain of $750m from the sale of Balboa when it reports second-quarter earnings on July 19. Terms of the life assurance sale, which is expected to be completed by October 1, were not disclosed. BofA said that the deal was not material to its earnings.

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UK banks face pressure to build capital

Kate Mackenzie — Wed, 29 Jun 2011 03:24:54 +0000

UK banks are facing increased pressure from regulators to use strong earnings to build up capital ahead of official requirements rather than paying out most of it to staff and investors, the FT reports. Although Basel III gives banks until 2019 to meet new “core tier one capital” requirements, the Financial Services Authority, which has power to veto bonus plans if it believes they are hindering capital-building, wants banks to outline a “flight plan” which takes into account bonuses, dividends and the potential for another economic downturn. The BoE’s Financial Policy Committee is expected to step up calls for “opportunistic capital building”, and officials have been blunter in private over the need for action.

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