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
What happened with all that European bank deleveraging?
Some of it is over with, says Barclays — leaving, by our estimates of their estimates, about €650bn* of deleveraging yet to be carried out among the major European banks they cover**. Quite big, but much less than the €1.5tn – €2.5tn being discussed late last year. Read more
Basel catches European bank capital legislation letting big cross-border lenders play a bit too fast and loose with zero risk-weighting of government bonds for its taste, the FT says.
Well, here’s the key para… Read more
European retail lending as a dying bank business model walking — charts via McKinsey, in this new report by the consultants:
Portrait of a bank capital-counting model in trouble – charts via Barclays Capital:
We’re shocked (shocked!) that Commerzbank has rolled out a €1bn capital increase now that European bank equity isn’t a total disaster area. Having not done it when it was.
By executing this transaction Commerzbank intends to take advantage of a favourable market opportunity to further improve its capital structure… Read more
In Part 1, FT Alphaville discussed the recent resurgence of so-called “BISTRO-type” securitisation deals. These allow banks to lower their capital requirements and defer losses by buying protection on portfolios of assets.
The Basel Committee issued a letter about such securitisation deals in December, effectively warning banks that over-engineering purely to reap regulatory capital benefits would not be tolerated. More recently, the head of the Financial Stability Board has called for the shadow banking sector, where the risk from such deals is offloaded, to be dragged into the harsh light of day. Read more
The Financial Services Authority is tightening its oversight of commercial property lending and has ordered banks to improve the way their internal models measure risk or switch to more standardised calculations that could increase the cost of loans significantly, reports the FT. The Basel Committee on Banking Supervision and the European Banking Authority have promised to crack down but some national regulators are already intervening in areas that they consider particularly problematic. The FSA has started with commercial property lending, long an area of concern for Lord Turner, its chairman, who argues that poor loan choices in this area have been central to most recent financial crises. The FSA has told some banks to make their models for commercial property more robust by ensuring they include recent losses, or switch to the more standardised “slotting” calculation. Read more
The Bank of England gets the claws out in its Financial Stability Report released on Thursday:
Structural vulnerabilities can amplify shocks stemming from the macrofinancial environment. Fault lines in the regulatory framework are one example of such structural risks. Read more
There might be some wiggling about liquidity but the worldwide work of getting banks ready for Basel III goes on. Though there’s been an interesting development in Australia recently.
Australian banks and other savings institutions were this week given some guidance on how they’ll be expected to meet Basel III capital requirements when the Australian Prudential Regulatory Authority (Apra) came out with a discussion paper (PDF) which suggested an accelerated timeline for adopting new rules. Read more
Both the Commission and the ECB considered that a sovereign default or a credit event would likely trigger contagion to the core euro area economies with severe economic consequences. [IMF] Staff however also saw serious risks of contagion, even under a strategy which tries to avoid default or credit events…
Just a taste from the IMF’s Article IV consultation on the eurozone, published on Tuesday. Grim reading: Read more
This, we think, could well be the most important chart in the world right now:
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
Senior banking regulators are starting to press for a new international standard to assess lending risk in order to ensure that the drive to strengthen the global banking system is not defeated by fragmented national standards, the FT says. UK regulators, in particular, are urging reform of the way in which risk-weighted assets are calculated. RWAs form the denominator of the key measure of banks’ capital strength – the so-called core tier one ratio – with equity as the numerator. International regulators on the Basel Committee on Banking Regulation have drafted Basel III reforms to harmonise the definition of core capital, but little has so far been done to standardise the approach to RWAs Read more
Citi doing weird accounting manoeuvres? Perish the thought!
From the bank’s first-quarter results press release: Read more
Progress at the bailed-out RBS, in table-form:
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
