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They all come from this Stefan Ingves speech given on Thursday — in which the Basel Committee chair addresses “some concerns… that banks are not calculating risk weighted assets” – the denominator in a bank’s regulatory capital ratio – “consistently”.
Basel is about to release results of a probe into banking and trading books… Read more
Hat-tip to the FT’s Tracy Alloway…
Some interesting detail from the House Financial Services Committee’s report into the collapse of MF Global. It’s an account of the broker-dealer’s arguments over the capital treatment of the eurozone sovereign debt which was used in its repo-to-maturity trades.
The gist of the argument was that the debt — Italian, Spanish, Belgian — should be treated as US Treasuries (safe, little to no haircut) or, oddly, as a corporate bond if it was Portuguese or Irish. Read more
The Swiss bank has wasted no time in starting the cost cutting programme it announced just this morning. Some people learnt of this when they tried to enter their offices on Tuesday morning, only to discover their passes weren’t working.
Our hedge fund sources also tell us that many of their UBS contacts “have red dots on their B’berg” this morning, meaning they’re not logged in. It sounds like sales staff have generally been the first to go. Read more
Penned by William Bratton and Credit Slips blogger Adam Levitin, it also points out that corporate law continues to lag the accountancy profession in understanding the implications of SPEs. That weakness is important when the original purpose of many SPEs — for banks to replace equity with contracts as a means of controlling assets taken off-balance sheet, in order to gain relief from regulatory capital — is as relevant as ever. Read more
It comes from a hedge fund activist par excellence:
That’s a letter (hat-tip to Bloomberg) from Christopher Hohn, managing partner at The Children’s Investment Fund, to British financial regulators questioning “loss absorbency” of contingent capital at the state-backed lender. The FT reports: Read more
Click the pic to peruse the UK government’s white paper on bank reform, published on Thursday in response to Vickers…
The consultation is open until September. On a quick read-through we’d highlight some of the proposed exemptions from ring-fencing retail ops — also this move on leverage ratios: Read more
Now when and where did that last happen…
In Tuesday’s FT, Brooke Masters reported on a rather novel approach that some banks are trying to take in order to reduce their capital requirements. The trick is to reduce the predicted loss that would be experienced if a borrower were to default. This is effectively done by getting an insurer to guarantee the future value of the collateral held as security for the loan. Read more
Portrait of a bank capital-counting model in trouble – charts via Barclays Capital:
Hopefully that headline gets your attention for the Basel Committee on Banking Supervision’s latest review of capital rules for banks’ trading books.
There is a lot in it — the Committee has been tinkering with trading books since the crisis exposed serious mismatches between the capital that banks’ models said they needed for trading structured credit, and the losses they ended up experiencing. In fact this review follows up on the 2009 rule-set dubbed ‘Basel 2.5′. 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
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
Shares in Commerzbank were up about 11 per cent at pixel time. It’s generally a strong day for European banks as well, but we suppose (bemusedly) it’s following this statement from the German lender on its €5.3bn capital hole…
The capital requirement in accordance with the EBA methodology could be reduced by the end of 2011 from EUR 5.3 billion by EUR 3.0 billion thanks to risk-weighted asset reduction (Core Tier 1 relief approximately EUR 1.6 billion), a reduction in regulatory capital deductions (some EUR 0.2 billion) and retention of earnings in the fourth quarter 2011 (approximately EUR 1.2 billion). As of year-end 2011 Commerzbank has thus already fulfilled 57 % of the EBA capital requirement. 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
Update – FT Alphaville has heard that the answer to this question is in fact… yes. See below for more details.
The official EBA numbers on European bank capital shortfalls are out. In aggregate it’s €114.7bn. Read more
We missed this earlier — these are Societe Generale credit strategists’ 2012 forecasts for supply of bank and corporate bonds issued in euros.
Spot the odd (shrunken) one out? Read more
There are technical and fundamental factors on top of the blind panic and fear. And that’s not all. There are a number of regulatory factors too, and it’s these demons of our own design that FT Alphaville would like to discuss with you. Read more
Eurozone banks selling assets in Emerging Europe – to tart up their capital ratios under crisis pressure – is not front-page news at the moment.
Frankly, we think it should be! Read more
Updated — We’ve added a bit more on how the EBA might treat convertible bonds as part of the capital targets. Also see the FT’s reporting on the issue.
At some point on Wednesday, eurozone governments will say they want banks to find an unspecified amount capital, based on revised sovereign haircuts which… we still don’t know a lot about.
We know that sovereign bond positions will be marked down, or up, according to market values. (When the values will be taken, we don’t know either. Imagine marking five-year Italian debt at dates before and after this summer’s ECB intervention, for example.) We know at the very least that this all fits into a 9 per cent core tier one capital ratio target. Read more
Whatever happens in the eurozone this week, banks will have new capital ratio targets. They are not going to raise enough actual new capital to meet them.
Ergo they flip the ratio and start burning off risk-weighted assets. Read more
(Reuters) European Union banking regulator EBA has demanded that lenders achieve a core tier one ratio of at least seven per cent in the current round of internal stress tests, banking and regulatory sources told Reuters on Tuesday.
It remains unclear whether capital that qualifies as core tier one will be defined according to rules known as Basel III, or whether an earlier version, known as Basel 2.5 will be applied, these sources said… Read more
There’s something important missing from this recent Goldman call: (from a note earlier in the week)
We are not convinced that an effective ring-fence [for bank capital from a Greek default] is a realistic concept. This said, we show that if we apply an incremental 60% cut on Greek sovereign debt and a 10% cut on remaining credit exposures, European banks could face an additional €76 bn of pre-tax losses, of which the overwhelming majority is with the Greek banks (€54 bn). Read more
The committee behind Basel III is set to press on with introducing extra capital requirements for the world’s 28 biggest banks, countering heavy lobbying in recent months, the WSJ says. Regulators will meet this week to consider comments on the capital surcharge, which would require banks to hold between 1 and 2.5 per cent more capital against risk-weighted assets in addition to a 7 per cent global minimum. US officials have swung behind the surcharge as it becomes clear that the rule will both remain largely the same and become finalised later this year, despite criticism of the capital regime by JPMorgan’s Jamie Dimon. Read more