Comments on: Basel III: Grounds for optimism http://blogs.reuters.com/felix-salmon/2010/05/26/basel-iii-grounds-for-optimism/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: APACreader http://blogs.reuters.com/felix-salmon/2010/05/26/basel-iii-grounds-for-optimism/comment-page-1/#comment-15274 Sat, 29 May 2010 07:16:08 +0000 http://blogs.reuters.com/felix-salmon/?p=4016#comment-15274 Agree with the above comment – the banking issues have arisen from a series of failures which have in aggregate caused a systemic crisis of global proportions.

Many reasons – all valid contributors – sourced in the good old USA and supported by some European banks – need to be addressed: non-recourse lending for housing, honeymoon interest rates, lack of accountability in selling debt (through securitization) with inappropriate reward structures, CDO structures to slice and dice securitized debt so it is even less transparent with even lower accountability, rating agencies that rated it inappropriately, investment banks who gamed the rating system by hiring rating agency insiders, regulators who were asleep / unable to view issues in full context and to top it of OTC CDS’s growing to epic proportions to supposedly insure us all from catastrophy (OTCs resulting is an ever greater pool of exposure due to the need to enter a counteracting trade to cancel a position – with both positions remaining “live” like grenades – No doubt even more factors.

And the response? Tighten GLOBAL capital adequacy requirements for ALL banks. Forgive my cynisism however this appears to be be a one dimensional solution which helps level the playing field globally for all banks so we can all pay the price – as I sure we all know tighter regulation adversely impacts smaller banks more than large due to compliance costs, typically harder to obtain funds and more expensive etc and will have a greater impact in faster growing regions like Asia where institutions will need more capital to support future growth without this impediment. A suggestion that greater adequacy requirements will not slow down lending growth in ludicrous – it is a form of deleveraging.

How about some more targeted solutions for the problems – ban non-recourse loans for mortgages (so borrowers are more prudent), address issues of accountability (and reward) associated with securitization/CDOs, address rating agency issues, establish exchange traded mechanism for CDSs and maybe as per George Soros place some controls on whom can use them (look to limit the possibility of insured parties acrually wanting a failure!

Some thoughts to start with – Basel 3 seems well and truly removed from the key issues and also the jurisdictions which need to be fixed

How about –

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By: Greycap http://blogs.reuters.com/felix-salmon/2010/05/26/basel-iii-grounds-for-optimism/comment-page-1/#comment-15220 Wed, 26 May 2010 17:33:21 +0000 http://blogs.reuters.com/felix-salmon/?p=4016#comment-15220 The response of the Canadian Bankers Association (http://www.bis.org/publ/bcbs165/cbac.pd f) bears out your summary to a degree. In several cases, though, they support their claims with cogent arguments – a fact you fail to mention.

They also level criticisms that go beyond the simplistic story of self-serving lobbying, among which are:

1. “Certain previously regulated activities may also move into the unregulated market, which could increase rather than reduce systemic risk.”

2. “Many of the proposed deductions, such as the deferred tax assets and counterparty/CVA deductions, would exacerbate procyclicality.”

Will Basel III really decrease systemic risk, or will it merely corrupt the last bastions of sound regulation?

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